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How does the power company work out your electricity bill?

Take the age of your fridge, add the weather and the number of errant drivers who have recently totalled power poles. Top with a sprig of bank notes for the power company's marketing budget and add the cost of a meter reader's clipboard.

Well, not really, but the real equation is no less confusing.

Up to four different outfits are potentially involved by the time you flick a light switch.

A generator makes the electricity, Transpower moves it around the national grid and a lines company gets it to your door. Then there is the cost of billing you and dealing with your niggles - AKA customer service.

There is also a small charge for the Electricity Authority - the body that oversees the industry and who backed the What's My Number? power switching campaign.?

Retailers don't like to take the blame for other people's price increases.?But they are not always great at explaining what changes mean for you.

Take retailer Meridian, who wrote to Auckland customers last week and made it clear that looming changes in pricing were coming from lines companies Vector and Transpower.

What it didn't explain was that the seemingly scary-looking 500 per cent increase in fixed daily fees was not necessarily a big deal. Most people would save more than they would lose, from a seemingly smaller price drop of a few cents per unit of electricity.?

SURPRISE BILL

Per what? You could have worked it out whether the change would cost you money - if you had intimate knowledge of your power bill.

Most people don't want to know the intricacies, says Citizen's Advice Bureau national research and policy advisor Andrew Hubbard. They just want the big fat number at the end. This can backfire.

The CAB deals with about 2500 enquiries a year from people who don't understand or can't pay a big bill, many of them facing disconnection.

Sometimes the problem is the electricity retailer has been estimating usage for several months in a row, says Hubbard. There you are, innocently paying your bills, not realising they are based on a series of out-of-date estimates. Possibly you are wondering why plugging in the spa pool hasn't pushed your bills up.

When a meter reader finally turns up at the house, you are walloped with several months' worth of underpayment.?

"Sometimes they have it recorded that the meter can't be read, when it can, or there is some other issue with the power company reading it," says Hubbard.?

If your bill says "estimate" for more than one month in a row, call and ask why, he says. ?

Another common gripe is people switching to a cheaper company, then being hit with a price rise at the new outfit, he says.?

Another is break fees - companies have been pushing fixed term contracts to try and stem the flow of people switching. People can be pinged if they subsequently find a cheaper company or move house and switch, he says.

Other easy things to watch out for in a bill are whether you can get an early payment discount and whether there is any money outstanding from your last bill, says Hubbard.?

SEPARATION OF POWERS

Depending where you live, you might get separate bills for electricity and the cost of transmission, or a single bill breaking out the charges, or one bill with no break-down at all, says Sue Chetwin, chief executive of Consumer NZ.

"Transpower runs the grid and the lines companies that operate in your area run the lines from the grid to your house," she says.?

The cost of getting electricity to you makes up about 35 to 40 per cent of bills, according to the Electricity Authority. Most of the rest is charges from retailers, including what they pay for electricity on the wholesale market.

In a dry year, or if there is high demand, the cost of power can go up as generators switch to more expensive sources. Lines charges may rise if one of the lines companies upgrades.?

Your bill should give you a break-down into daily fixed charges - the fixed rate you pay for simply being connected, which varies between pricing plans. This amount covers meter rental, meter reading costs, and, usually, a fixed fee charged by a network operator or lines company, says CAB.?

The other component is a variable rate charge based on your power use, displayed as units or kilowatt hours.

The CAB has a handy guide to reading your bill, while Switchme has diagrams of bills from several major companies with a blow-by-blow guide.

Depending on how much you use, where and when, various price plans from different companies work out cheaper. Often low power users can opt for a plan with a lower daily rate and a higher variable rate.?

UP AND DOWN

Consumer's Powerswitch website helps you work out whether to switch.?But nothing in your bill explains why prices seem to keep rising above inflation.

For the first time in years, bill payers have hope - retailers' prices are expected to flatten and lines fees are falling for many people in Auckland and Northland.

Vector - the monopoly that distributes Auckland's power - is lowering its charges at the behest of the Commerce Commission after unsuccessfully fighting a ruling ordering it to reduce higher charges by about 10 per cent.

On the downside, price-wise, is news that the national grid operator Transpower is boosting charges to pay for better infrastructure, including building a new high voltage cable across Cook Strait.

The Electricity Authority gave Transpower the green light to install a better cable taking electricity from the hydro lakes in the South Island to power users in the North. Transpower's chunk of your bill is expected to go up from about 7 per cent to 10 per cent.

The good news is Vector says the net effect for Auckland and Northerners should still be a drop in transmission charges.?

It estimates its residential customers will get an overall price reduction of about 9 per cent.?

What actually happens depends on your pricing plan.

Some people will pay up to 1.2 per cent more, depending on factors including whether they have a smart hot water cylinder that switches on at times of lower demand, and whether they use less than 80000 kwh a year.?

According to examples from Vector, starting in April a couple living in an apartment in central Auckland who are low users of power (annual usage of 4000kWh a year) and whose hot water cylinder is connected to Vector's load management system (this helps the company manage demand) will pay 1.1 per cent more than they would have done, or $4.40 a year.

A family with children in a house in Auckland's central suburbs, with no hot water cylinder hook-up, who are high users (10,000kWh a year) will pay 12.1 per cent less, saving $132.75 a year.

GOOD NEWS?

Even better news, no matter where you live, is that the Electricity Authority is predicting retail electricity prices should flatline or fall this year for the first time in years.

Demand is wobbly, and despite the summer droughts the hydro lakes that supply most of our electricity were relatively full earlier in the year, though they have fallen sharply in recent weeks.

The wholesale futures prices that electricity retailers must pay had fallen dramatically at the start of the year.

Chetwin wonders why this isn't showing up in our bills yet.

"Lake management is much better than it has been in other years...and demand has flatlined, partly because some of big industrials aren't using as much.

"Tiwai (Point, the giant aluminum smelter) and Norske Skog have scaled back and the earthquake means demand from Christchurch is not as as much as it once was. Added to that has been quite a bit of investment from retailers in trying to build plants so they now have spare capacity."

The industry says it buys electricity on futures contracts, so retail prices will always lag behind any changes in wholesale prices.

The Electricity Authority says it will be watching prices closely over the next 18 months.

Households don't have as much clout as industrial power users, but they can keep the pressure on by using competition, says Chetwin.

The advice from her and Hubbard is to watch your bill, and regularly consider switching. The CAB will compare power prices for people without internet access, if they can't access Consumer's Powerswitch website.

If prices don't flatten, your power bill will probably not explain it to you.

13-03-13 1052

- ? Fairfax NZ News