Some businesses facing six figure power bill increases

Nicholas Pointon for RNZ

Businesses are being hit by massive rises to their power bills as dry weather and a natural gas shortage wreak havoc in the electricity market.Hundreds of thousands of dollars in extra costs are hitting firms as they look to renew their fixed power contracts.

Christchurch-based firm Enztec employs 70 people to design and manufacture high-end medical instruments for the global orthopaedic market.

It usually operates on a fixed electricity contract with its suppliers, to avoid the volatility of spot prices.

But its chief executive Iain McMillan said it had struggled to get a new deal since its previous contract ended in February.

"We have had one company being prepared to negotiate a contract with us and we're still actively working on that.

"But several of the large supply companies basically said they did not have capacity to supply and therefore wouldn't even put an offer to the table."

Enztec is now stuck paying spot prices which are more than 50 percent higher than a year ago, according to the energy consultancy firm Energy Link.

This is because the country had been suffering from outages at several gas fields since December, dry weather to start the year and low hydro lake levels.

Enztec's monthly power bill had about doubled but it was unable to pass these costs onto its customers because the price of its products are fixed.

As a consequence, McMillan said Enztec would have to reduce spending on research and development because it had no idea when the upward pressure on power prices may ease.

Enztec's situation was not unique with more firms saying they were at the mercy of high wholesale electricity prices.

RNZ understands the new power contract for supermarket operator Foodstuffs is 70 percent more expensive.

The company would not comment on the specifics, but in a statement its North Island chief executive Chris Quin said it had seen significant increases in its power bill.

"The combination of price increases is affecting our stores across the board, large and small, and a lot of effort is going into trying to find efficiencies to manage prices to consumers.

"It is particularly hard for our smaller stores with a number of cost impacts from recent policy changes, compliance costs, talent shortages and supply chain costs," he said.

RNZ also spoke to the chief executive of a large commodity business, who did not want to be named, who said he thought he got off lightly when its new contract only rose by 43 percent.

Another company with offices nationwide, who would not comment on the record, said it was facing price hikes of several hundred thousand dollars per year.

Employers and Manufacturers Association head of advocacy Alan McDonald said it is consumers who would ultimately pay.

"[The high power prices are] going to find its way through into prices of consumer goods and other goods, alongside things like supply chain pressures, wage pressures, the whole Covid background to everything,"

RNZ approached some of the power companies for comment on this story and only Meridian responded.

It said it acknowledged the effect high wholesale power prices were having on large customers who were coming off their contracts.

Meridian said it continues to offer fixed price contracts and would work with its customers to provide solutions that, to the extent possible, insulated them from price increases.

The Electricity Authority's general manager of market policy Andy Doube said it was investigating prices in the wholesale market to ensure they were competitive.

However, he said spot prices were inherently volatile.

"When we do have dry years, such as the one we do, coupled with the gas issues that are being experienced out of Pohukura, we do expect the market will start pricing scarcely and I think that's some of the prices we're seeing at the moment."

'You can't afford that type of price shock'

Major Electricity Users Group chair John Harbord said low hydro lake levels was only part of the story.

"We've had elevated prices since spring 2018 and each of those years we haven't had dry years.

"Scarcity of gas supply is a contributing factor. But equally we have real concerns about the competitiveness of the wholesale electricity market and the prices that therefore consumers pay."

"We've had high prices for the last three years and the futures market is forecasting those same high elevated prices for at least another two to three years."

Businesses are being quoted prices for hedge contracts - used to offset price volatility - of double what they were paying for the last contract, he said.

Companies will not be able to sustain price shocks like that, he said.

"We've got at least one member of our group at the moment who's operating at a loss because of high electricity prices and you can't sustain that either."

New power generation was several years down the path and "the reality is a lot of businesses in New Zealand will be out of business by the time that happens".