KEY POINTS:
The Government has pledged to investigate "alarming" increases in power prices as escalating costs continue to eat into tax cuts.
From today, workers have between $12 and $28 more a week under the Government's first round of tax cuts, while superannuitants and recipients of Working for Families also get more in their pockets.
However, the impact of these measures has already been eroded by heavy increases in the cost of living, and substantial power price rises will further eat away at them.
Contact Energy has announced it will increase prices by an average 11 to 12 per cent for customers in Wellington and the South Island from next month.
From today, Mercury Energy's central Auckland customers face an average increase of 4 per cent, while customers in Manukau, Papakura and Franklin face increases of between 2.5 and 5.7 per cent.
Commerce Minister Lianne Dalziel said she failed to see how Contact Energy's increases could be justified.
Contact has blamed a lack of transmission and generation capacity, but Energy Minister David Parker said that did not seem to make sense.
"We were told a year ago no more significant price rises were on the way, yet here is another major increase," Mr Parker said.
While the Commerce and Electricity Commissions are already investigating competition in electricity markets, the ministers will ask the Cabinet on Monday to consider a broader inquiry.
Mr Parker also questioned whether there was a link between the dry winter and the latest price rises.
"It's been suggested to me that Contact Energy has lost a bundle of money this year due to the impact of the dry winter on their hydro power stations, and they're raising prices to compensate," he told the Herald.
"That needs to be looked into. A one-off dry year is a risk they have to take, which is made up for all the other times that the rain falls as normal, and it's not a reason to raise power prices."
A Contact spokesman said the company would co-operate with the Government, but stood by its analysis.
National Party energy spokesman Gerry Brownlee said Labour had presided over a 48 per cent increase in domestic power prices in the past five years.
"Suddenly, on the eve of an election, they announce a review. After nine long years, and regular complaints about the state of transmission and generation, they are trying to pretend they will do something about it."
Lobby groups have joined the Government in attacking Contact's increases.
Consumer New Zealand CEO Sue Chetwin encouraged Contact customers to shop around for power retailers.
She said the Powerswitch website - which allows consumers to compare electricity providers - got over 1100 visits yesterday - twice what it got for the Tuesday last week.
"Just as superannuitants are about to get some relief from the rising costs of living, along comes Contact Energy and takes it away," said Grey Power president Les Howard.
"This is a classic case of greedy foreign companies ripping off New Zealanders."
The Domestic Energy Users Network claimed companies such as Contact were using competition against consumers.
"Contact Energy must come clean about hiking prices," said analyst Molly Melhuish.
BNZ economist Mark Walton said once food prices and other inflationary pressures eased, as predicted, people would ultimately be better off from the tax cuts.
Darryl Evans, of Mangere Budgeting and Family Support Services, said there was a lot of desperation about.
"There's a lot of families struggling, from week to week."
The good news is:
From today, New Zealanders get an extra $12 to $28 a week in tax cuts.
An increase of about 5.2 per cent in Working for Families tax credits, and about $12 extra per week for superannuitants also kicks in today.
The bad news is:
Electricity retailers are raising prices by up to 12 per cent around the country.
Spending at the petrol pump rose 28 per cent in the year to July.
