Earlier this year, Meridian gained approval to access contingent water storage in Lake Pūkaki, which has also put downward pressure on forward prices.
In a letter to Electricity Authority (EA) chairman John Harbord, obtained by the Herald, Brown said he had asked each company to set out the reductions they have made or will make to their retail prices, when those reductions take effect, and how many of their customers will benefit.
He asked the EA to look at the extent to which the fall in forward and spot wholesale prices was being reflected in retail tariffs across the market, and how quickly that pass-through was occurring.
Brown also asked whether hedging, contracting or internal transfer pricing arrangements within the big four’s vertically integrated businesses were delaying or dampening pass-through.
“Without any prompting from me, a competitive market should deliver lower prices when underlying costs fall and I would far rather see this delivered by competition than any other route,” Brown said in his letter to the EA.
“I want to understand clearly what the market is doing before deciding whether anything further is required, and our advice is central to that.”
Last week, the Auckland Business Chamber and the Northern Infrastructure Forum called for big changes to be made in the energy market.
Chamber chief executive Simon Bridges made a case for separation of the generation and retail functions of the big four – which control 85% of New Zealand’s power generation – to intensify competition in the retail market.
Power prices have been rising, mostly in line with increases in transmission and distribution costs, and are expected to keep rising over the next few years as grid operator Transpower and power distributors invest more in the system.
Stats NZ data for the June year showed the consumers price index rose 4.1% in the June year, driven mostly by fuel prices but also by a 12% increase in electricity costs.
The power component of household power bills does not tend to change greatly from year to year, shielding customers from the big fluctuations in spot prices that occur over any given time, Greg Sise, executive chairman of consultants, Energylink, told the Herald.
“Assuming the spot market is sorted out in terms of supply, the pressure will be taken off the market and you will see the contribution of the wholesale prices fall for residential consumers, but they will only inch down,” Sise said.
“Residential prices have a lag – they lag on the way up and lag on the way down as well,” he said.
Meridian Energy chief executive Mike Roan confirmed the company – 51% owned by the Government – had received a letter from Brown on the subject of forward prices.
“We are considering the points raised and look forward to engaging further with the minister,” he said.
The Electricity Authority (EA) said it continually monitors market behaviour across the electricity system.
The authority recently asked all electricity retailers for information about the drivers behind price rises and would be releasing the findings later today.
“We note that forward prices have fallen considerably this year, and some commercial and industrial users are negotiating improved deals as their contracts expire,” chief executive Sarah Gillies said.
The authority expects lower wholesale prices to flow through to residential consumers.
The EA would continue to monitor and regulate the market.
“This includes compliance with the new non-discrimination obligations designed to level the playing field, and we will continue to make changes that strengthen competition and put downward pressure on prices,” she said.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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