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Paul Fuge: Consumer NZ spokesperson on the planned increase in power prices · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk SEDB. Follow this
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  Speaker 2: Bad news is if the looming price of everything going
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  Speaker 2: up because of the Iran war isn't bad enough. Your
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  Speaker 2: power bill is going up, and it's going up tomorrow
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  Speaker 2: by a predicted five to ten percent. Paul Fuse is
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  Speaker 2: the manager of Consumer New Zealand's power switching with us
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  Speaker 2: Hi Paul good Evening. This is down to the line charges, isn't.
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  Speaker 3: It mostly lines charges? So the increase is split roughly
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  Speaker 3: sixty percent for the lines increases and around forty percent
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  Speaker 3: for the energy itself in terms of increases.
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  Speaker 2: Oh okay, so fairbit is coming from the power companies
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  Speaker 2: even though they blame the lines charges.
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  Speaker 3: Correct, that's right. So it's last year it was a
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  Speaker 3: larger lines increase, it's a more moderate increase this year,
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  Speaker 3: and we'll continue to be increases the next four years
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  Speaker 3: with this regulatory cycle.
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  Speaker 2: You guys don't any comparisons as to which power companies
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  Speaker 2: are doing less of a hike and which are doing more.
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  Speaker 3: It's actially difficult to tell because it varies between the
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  Speaker 3: different regions and the different plan types. As well. And
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  Speaker 3: also on top of that, some retailers have different strategies.
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  Speaker 3: So although most retailers will put their prices up on
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  Speaker 3: one April because that's when the prices the line's prices change,
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  Speaker 3: so retailers are clever and they basically put their prices
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  Speaker 3: in with that increase. But this year some have gone
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  Speaker 3: a little bit early in someone going a little bit later.
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  Speaker 3: So it's difficult to tell because there is quite a
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  Speaker 3: bit of variances as well. So for example, we looked
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  Speaker 3: across our power switch database and we looked across New
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  Speaker 3: Zealand a typical household for a typical type of plan,
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  Speaker 3: that's what we call a controlled hot water plan, which
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  Speaker 3: is fairly typical across the country, and we found that
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  Speaker 3: the price increases range from four percent to its highest
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  Speaker 3: twelve percent across the country for that same plan for
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  Speaker 3: the same sort of household. So it really does vary
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  Speaker 3: in terms of the increase, So some households will see
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  Speaker 3: a lower increase and some will see higher depending on
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  Speaker 3: a range of factors.
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  Speaker 2: I mean this is this goes some way to explaining
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  Speaker 2: why it's so difficult for consumers to decide which power
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  Speaker 2: plan to be on. And which company to be with.
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  Speaker 3: Right, Well, that's right, and that's why we run powers,
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  Speaker 3: which in an ideal world you shouldn't need a price
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  Speaker 3: comparison site, you know, any price comparison sites for most things.
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  Speaker 3: But yeah, because it is so confilutent and so complex
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  Speaker 3: and the maths is so hard, we we have to
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  Speaker 3: run the service we're running for twenty five years now
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  Speaker 3: to try and help people, you know, make heatletail of this.
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  Speaker 2: Well, do you have a view on whether the gent
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  Speaker 2: tailors should be broken up?
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  Speaker 3: Yes, we do so Consuming New Zealand's always head of
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  Speaker 3: view that we feel it needs to be greater separation
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  Speaker 3: between the generation and retail parts. If you want the
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  Speaker 3: retail market to function as it should be, or wasn't
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  Speaker 3: envisigs it would function. We're not seeing the competition in
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  Speaker 3: that retail space that would help bring prices down. And
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  Speaker 3: part of that is because you know, the generation and
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  Speaker 3: retail are joined together, there's greater separation. We think there'd
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  Speaker 3: be more more competitive pressure for.
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  Speaker 2: Explain to me why this should happen. What is the
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  Speaker 2: benefit in taking a gen tailor breaking it up so
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  Speaker 2: the generation is on one side, the retailers on the other.
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  Speaker 2: How does that bring the prices down?
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  Speaker 3: Because it increases competitive pressure. So you understand if you
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  Speaker 3: are a non generator and you're having to purchase eltricity
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  Speaker 3: from the very same people you're competing against. I mean,
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  Speaker 3: you don't need to be a market expert or an
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  Speaker 3: economists to see the inherent flaws in that. In terms
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  Speaker 3: of competition, it's very hard for independent retailers to compete.
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  Speaker 3: And if you look at the profits of the of
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  Speaker 3: the gent tailers, they're quite large, and in the competitive market,
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  Speaker 3: when you see large profits, you expect to see a
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  Speaker 3: rush of people rushing into that market. We don't see that,
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  Speaker 3: and we're seeing these small independents ready struggle to get
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  Speaker 3: a foothold even though they're offering quite competitive rates. So
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  Speaker 3: if you look at Octopus Energy, it's a massive retailer overseas,
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  Speaker 3: it's one of the largest retailers in the UK and
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  Speaker 3: an Asian hour, it's really struggling to get a foothold
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  Speaker 3: here because it just can't compete with these large gent tailors.
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  Speaker 2: Okay, So one of the problems, I mean, and probably
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  Speaker 2: the biggest criticism of the gen tailors is what they're
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  Speaker 2: doing is they're artificially keeping the price of power high
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  Speaker 2: by not building enough generation, and so they keep it
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  Speaker 2: just on that kind of edge so they can keep
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  Speaker 2: on making as much money as possible. Does breaking that up?
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  Speaker 2: Does breaking up a gent tailor solve that problem?
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  Speaker 3: No, it won't. You're right there. That's a market structure
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  Speaker 3: problem in the way that we price elticity in terms
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  Speaker 3: of the market, in terms of how dispatch, and that
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  Speaker 3: sort of incentivizes scarcity because at the moment, the marginal
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  Speaker 3: generator that's the last generator in the stack sets the price.
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  Speaker 3: So even though we've got a really low cost renewable
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  Speaker 3: base of really quite old renewable power stations, the price
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  Speaker 3: is predominantly set by expensive gas fired and coal.
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  Speaker 2: Fired power station sontly sets it right.
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  Speaker 3: That's right. So even though we're sort of eighteen ninetyercent renewable,
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  Speaker 3: the gas power stations setting the price eighty percent of
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  Speaker 3: the time. So that's what's driving the price up is
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  Speaker 3: we're not paying on the price of the actual generation.
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  Speaker 3: We're paying on that marginal generator. And of course if
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  Speaker 3: that that benefits the lower cost generator because they're getting
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  Speaker 3: paid a higher price. So the incentivistes always keep it
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  Speaker 3: at that point where they're gett that higher price. So
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  Speaker 3: the market incentivizes that scarcity, which it drives the higher profit.
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  Speaker 3: So if you want the price to come down, you
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  Speaker 3: need to change that mechanism.
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  Speaker 2: Yeah, quite. How you do that is another question, all right, Paul,
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  Speaker 2: I really appreciate it's pulfuge Consumer and Zealand power Switch Manager.
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