ATS Short Circuit July 2015

Short Circuit JU LY 2015

Advice to members

HYDRO SITUATION

Tracey Gordon, ATS Energy Account Manager

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SHORT CIRCUIT | JULY 2015

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Don’t hesitate to call us to ensure all your farm energy needs get the utmost attention, and best advice possible, on 0800 BUY ATS (289 287).

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Given the level of reliance upon irrigation within Canterbury, and the likelihood demand for it will continue to grow in coming years, we expect we will continue to deal with growing numbers of ATS members wishing to Tracey Gordon get the most they can out of the electricity contracts they subscribe to.

Increasingly ATS Energy is being recognised by members as a valuable benefit that comes with being an ATS member. This is thanks to our deep level of experience and local knowledge we have accumulated from offering years of advice.

Most importantly however is our ability to offer independent advice, separate from any constraints or affinities to any particular electricity supply company.

This enables us to represent the interests of our members without making a recommendation that is in any way biased or subject to company influence. Instead we are working to negotiate the deals that best fit our members’ seasonal electricity demand and contracts that fit those seasonal profiles.

We are increasingly conducting more comparative energy cost analysis for our members, given the greater competitiveness and choice they now face when it comes to deciding upon a reliable, cost effective and sustainable pricing contract.

Electricity contracts are also often complex when allowing for the seasonal aspects of pricing, with variable and fixed cost components often adding a layer of complexity to the pricing.

At ATS Energy we have worked hard to get electricity companies to simplify their accounts and ensure full transparency.

When the relationship between a member and their power company breaks down and issues arise over what is owed, at ATS Energy we are skilled in negotiation and resolution, delivering a result that strongly advocates on behalf of our farmer members.

We also put a lot of emphasis upon our newsletters, aiming to provide members with relevant and timely information about latest developments in pricing, technology and competition.

The value of a co-operative is its ability to deliver services equally to all ATS members, often without any extra cost to them. For shareholders in ATS, ATS Energy is one of those services where we aim to add value to our shareholders’ farm business.

ATS was originally formed to get a better deal for farmers in the goods they were buying at the time—ATS Energy is a natural extension of that, and we are proud to be able to help ensure one of our farmer members most significant cost centres is well managed and cost effective.

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Every season at ATS we get increasingly complex and potentially expensive issues arising about suppliers’ electricity contracts and pricing.

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Information taken from NZX Energy DISCLAIMER: The purpose of this information is to outline historic data and is intended for general reference only

Electricity bills catch up with history

By Richard Rennie

Next to local body rates, power bills are often the next most likely farm and household bill to raise the temperature of their recipients.

In recent years, blogs editorial pages and talk back radio have been peppered with the frustration of electricity consumers claiming New Zealand’s power bills are extortionate, overpriced and crippling their households or businesses.

When we compare the electricity cost in New Zealand against what some of our global trade partners pay, it is understandable why many consumers feel forced to write a letter, or let it all out on talk back.

Last year in New Zealand the average residential price for power was 28.2¢/kWh, and it ranges between the cheapest in Dunedin at 24¢ and oddly, nearby Balclutha is the most expensive at 38.2c.

United States consumers pay on average 12¢/kWh, with prices down as low as 8¢.

With only 12% of electricity generated from renewables in the US, compared to New Zealand’s 78%, many could ponder why clean green power from a hydro infrastructure built largely half a century ago, should be costing so much.

That is even more so when we compare this to coal fired power stations relying upon miles of train carriages traversing the US from mines hundreds of kilometres away.

Back in the late 70s when New Zealanders were paying 16.5¢/kWh and we were one of the cheapest in the world.

Today we sit near the middle of the developed world’s price levels, with South Korea one of the cheapest at about 12c/kWh, and Italy the most expensive at 36¢/kWh. The country with the closest generation profile to NZ is Canada where 60% of its electricity is from hydro, and average power costs range from NZ7–16.5¢/kWh. But at least farmers and businesses wincing at their electricity bills can take some solace from the fact they are paying less than the residential rate. Depending on the rate negotiated this can be between 12–14¢/ kWh for irrigation connections and 20–25¢/kWh for commercial non irrigation connections. However in 2013 it was found NZ has the largest residential-industrial differential in the OECD. Electricity prices have jumped most markedly over the past 10 years, following a period from the late nineties to about 2003 where they fell in real terms. Overall however the move has been inexorably upwards— back in 1990 electricity cost 9.1¢/kWh, but by 2013 that had tripled to 27.4¢/kWh. There was a period of reprieve in there, where electricity market reforms under Labour and National helped see inflation adjusted household electricity prices drop by just over 10% between 2000 to late 2002.

However from 2003 the Labour government decided to re-regulate the electricity sector, placing conditions requiring generators to build expensive renewable and gas generation plants. As a result a cluster of gas powered, wind farm and geothermal systems began to be constructed.

Add in carbon taxes, wholesale price caps and Electricity Commission red tape and the conditions were right for power costs to surge, and they did. On top of generation costs, transmission costs were also forced up with major infrastructural upgrades for Transpower, including the $800 million North Island Grid Upgrade project. The result was between 2003 and 2010 power prices surged 44%, or 6.2%pa, double the average rate of inflation.

The rapid increase over the past decade prompted the Electricity Authority to investigate. Its findings announced last year gave little comfort to anyone smarting over their power bill.

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The study found electricity charges in NZ were far below the cost of supply for many decades, and that current charges are now in line with the costs incurred to supply electricity.

Authority Chief Executive Carl Hansen said prior to the 1990s NZ governments had treated water as a free resource, not accounting for it in the costs of electricity capital, and built very costly hydro projects.

“It is a myth the old hydro plants were low cost for NZ. They often had very high capital costs that more than offset their very low running costs. The total cost to NZ was often very high, but consumers were not charged the full cost of supplying electricity to them.”

But critics also argue the reason for prices lifting is a reflection of a need for generators to deliver a return on capital to shareholders, a requirement absent under the old government backed model.

“Obviously we would all like to pay less for electricity. The best way to sharpen up prices is to increase the competitive pressure in the market.

Everyone who purchases electricity can help encourage competition by actively seeking the best deals,” says Carl Hansen.

ATS Energy offers an independent service to all shareholders wanting to optimise their energy use and costs. Call Tracey Gordon on 0800 BUY ATS (289 287) to discuss the best energy options for your farm business.

SHORT CIRCUIT | JULY 2015