Electricity prices remain high despite overflowing lakes, low wholesale prices

Wholesale electricity prices have fallen to their lowest levels in years as inflows into hydro lakes reached almost 200% of average inflow in the week ending January 4. Yet, as wholesale prices - what power companies pay for electricity from power stations - fell over the second half of 2008, retail prices continued to rise and are set to do so even more. State-owned Genesis Energy reported in December that it will raise power prices by about 9% in mid-January. The new government, through energy minister Gerry Brownlee, met with Genesis bosses to express disappointment at the price rises. As energy minister, Brownlee has the ability to remove and appoint Genesis directors. Reserve Bank Governor Alan Bollard in December warned that electricity price rises should be restrained in order to help the New Zealand economy recover from the economic downturn. Events in global finance markets over the previous year have led to the worst global financial crisis since the 1930's. As New Zealanders try to shield themselves from the current recession, those in power are trying to stimulate the economy by getting Kiwis to start spending again. Unemployment is expected to reach 6% in 2009 and employee confidence for 2009 posted a record fall, according to the latest Westpac-McDermott Miller employment confidence index. High wholesale spot prices in early to mid 2008 led to the rise in retail prices. However, as wholesale prices began to fall, retail prices continued to rise. Line charges - the cost of providing infrastructure to deliver power - rose by as much as retail prices in the second half of 2008. In the fourth quarter of 2008, line charges rose 7.6% year-on-year, while electricity prices rose 7.5% y-o-y. Weeks of heavy rain in the South Island led to hydro lakes filling up to 134% of average levels by the end of the week ending January 4. There have been reports of overflows at the Benmore Power Station on the Waitaki River, following spills from Lake Tekapo and Lake Pukaki further up stream.