Unseasonally low lake levels and reduced gas production are causing wholesale power prices to spike. (Photo: Getty)

Claims of electricity giants’ ‘rip-off’ as independent retailers face closure

Householders are losing out as ‘unjustified’ wholesale prices cause a wave of power company closures, a group of independent power retailers have told the Electricity Authority. 

Four independent electricity retailers have laid a joint complaint with the sector’s market regulator over prices they say are “threatening the very existence of independent competition”.

Industry sources said three more independent retailers are set to close next week, as they battle record wholesale electricity costs.

The new wave of expected closures follows the news that Dunedin’s Payless Energy will stop selling power, and the announcement from Nelson-based Powerdirect that its customers should switch to another provider.

Fellow independent retailers Pulse Energy, Electric Kiwi, Vocus Communications and Flick Electric have complained to the Electricity Authority that the current high spot prices set by the generator-retailers (the ‘gentailers’) are neither transparent nor justified.

The situation has collapsed liquidity in the hedge market and is threatening their existence, the independents said.

“The big gentailers have been ripping off Kiwi families for decades and will continue to unless they are made to change their practices,” said Vocus head of regulatory and commercial, Johnathan Eele.

“We and other smaller players have worked hard to drive competition in the market, while the gentailers continue to make massive profits thanks to questionable spot market pricing.”

Average spot prices for most of last month were $300 per MWh, the highest October monthly average in seven years. These sorts of prices are more common during winter months in unusually dry years, the Electricity Authority (EA) said.

The high wholesale prices are due to a double whammy of lower than normal lake levels and reduced gas production, the authority says.

Lake levels are now in the lowest 10 percent of historic storage levels. At the same time there have been restrictions on gas production due to equipment problems at the Pohokura gas field since late September, it said.

But the four independent retailers serving a combined 148,000 customers say the current high spot prices can’t be justified. 

“The prices were seeing in the market are a disproportionate response to the supply implications,” Electric Kiwi CEO Luke Blincoe said.

The gentailers are also not meeting their obligations around disclosure about what’s happening with gas supply.

“The lack of transparency and integrity in the wholesale market undermines competition, which means Kiwis miss out on deals,” he said.

The four retailers have lodged an Undesirable Trading Situation Claim for urgent consideration by the EA.

The authority needs to step up, Blincoe says. “By allowing current conditions to go unchecked, the EA is failing to regulate this sector with the independence and vigour necessary to fulfil its responsibility for promoting competition and the interests of consumers.

“This inaction undermines confidence in the market, and ultimately demonstrates market failure.”

The independents’ action comes as the government conducts a review of household electricity prices, which have increased faster than inflation for many years.

The review is investigating whether the electricity market as it stands is delivering fair pricing to end-consumers.

It will look at whether current market structures will be appropriate with rapidly changing technology and new innovations in the sector.

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