Monday, July 05, 2004

Power Plays.

Well's here's a surprise ... not! Meridian Energy is increasing the price of power. Again. Yes the lucky customers of that State Owned Enterprise (for overseas readers an SOE is Government owned but acts like a private company, confused?) will now have the privilege of paying more for their electricity. The price rise varies. Here in Canterbury it's around 10 percent, but for some North Island customers the rise could be double that.

Meridian's explanations for the increase are as follows:
1) The Maui gas field is running out so we're facing an energy shortage which mean power is going to cost more.
2) It's because of increased lines charges.

It's an interesting argument from Meridian considering it generates all its power from hydro lakes which, at last report, are full to capacity. It's puzzling to learn the gas shortage in the North Island somehow affects Lake Tekapo and Lake Pukaki's ability to provide power. Setting that aside there's another problem with Meridian's argument, the gas shortage isn't happening now. All the predictions are Maui will run out of gas in 2007-08 which suggests to me that they still have gas now. Why are we being billed in advance for a shortage that hasn't happened yet? Surely in a deregulated electricity market the laws of supply and demand would result in prices going up at the time when generating capacity is deficient. I'm no economist but this forward billing schtick that Meridian's pulling is more reminiscent of a planned economy, isn't it?

Lets have a look at Meridian's second argument that increased lines charges are driving the price increase. Yes it's true that in Canterbury lines company Orion did raise its lines charges by 1.1% earlier this year. However that was the first time it's been raised in five years so in real terms, over that period, lines charges have actually dropped about 3%. Coincidentally over that same five years energy generators and retailers, such as Meridian, have actually raised electricity prices by over 40%. It makes you think doesn't it?

Also let us consider a few past events that have affected the electricity industry and see how things stack up. It was over a year ago that the Maui Gas shortage was announced and that we were put on notice that the cost of power was going to increase. So what's different between the situation then, and the situation now?

1) Solid Energy has done a 10 year deal with Genesis to ensure the Huntly power plant has a regular supply of coal (good for power generation!)
2) In the past week or so a new generating station has been brought on line in Auckland (good for power generation!)
3) Investigations have revealed the Kupe gas fields are better than anticipated good for power generation!)
4) The Government's cut taxes and royalties to encourage more oil and gas exploration(good for power generation!)
5) Power generators are investing in wind technology(good for power generation!)

Looks to me if the situation now is better than what it was a year ago. Which begs the question; why raise the price? And of course we must remember Meridian took advantage of the situation last year and upped power prices by 15 percent. Could we accuse them of double dipping?

And what about all those ad's Meridian, Contact and Trustpower are running on TV at the moment. You know the ones that extol the virtues of power saving, that warn of the problems besetting the industry, and the ones that warn of price rises to come. They look pretty flash don't they? I bet they cost a buck or two and I bet that cost is being transferred straight onto our bills. Isn't it nice that we're paying more for our power and part of that price rise is probably being used to tell us the bad news in a 30 second Saatchi and Saatchi created wankfest.

Mind you you've got to appreciate the wonderful irony of the situation given the complete state of disarray our power infrastructure is apparently in. We're being billed more for a product we might not even get. Perhaps Meridian's been smarter than I thought ... they've factored in the power savings needed to maintain the integrity of our powerlines and have upped the price to maintain its profit margins. After all it'd be wrong if a State Owned Enterprise didn't return a healthy dividend to its masters in Government ... wouldn't it? (Actually does anyone remember when Meridian, or any other SOE power company, didn't make a profit)

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