Transpower bill may hit $33.7m

Transpower will pay dearly for its decision to retire an ageing part of the inter-island power link before last year's winter electricity shortage.

The Commerce Commission has decided the state-owned national grid company will have to pay for breaking commission rules through its efforts to keep power flowing from the North Island to the South Island across a weakened high-voltage direct- current (HVDC) link during the winter emergency.

The total bill for Transpower is likely to be about $33.7 million.

In October 2007, Transpower shut down the older of the two HVDC poles - which was commissioned in 1965 and includes cables under Cook Strait - due to its age and problems with insurance.

Meridian Energy's former chief executive Keith Turner predicted then the move would have major repercussions for the country if dry weather led to low hydro lakes, which it did.

He accused Transpower of having a "cavalier attitude" when it had originally planned to close the pole in 2010.

Transpower accepted responsibility for the $14.8m it paid to stave off southern blackouts through having emergency power in reserve in the financial year to June 30, 2008.

However, it went to the commission because it wanted South Island generators, including Meridian, Contact Energy and TrustPower, to pay the extra costs of the winter shortage that fell into the 2008-09 financial year, which ends next week.

That was originally estimated to be at least $6m. However, Transpower forecasts it will end up as high as $18.9m.

The grid company also wanted any future reserve costs to be transferred to generators.

However, the commission said yesterday the grid company had failed in its bid.

Commission chairman Mark Berry said the increase in emergency charges had been foreseeable and was not a result of "exceptional circumstances".

"The onus was on Transpower to accurately forecast and manage its risks and costs. The decision to remove pole one while having no alternative capacity in place increased its exposure to reserves, a risk that was fully predictable."

Allowing Transpower to pass on the costs would provide a poor incentive for "future behaviour", he said.

The commission did not consider Transpower's credit rating would be downgraded.

Transpower spokeswoman Adele Fitzpatrick said the company did not want to comment because it was studying the decision.

A commission spokeswoman said there was no specific appeal process for Transpower under the Commerce Act, but it could seek a judicial review if it was unhappy with the decision- making process.

In its 2007-08 annual report, chief executive Patrick Strange said the costs could only have been reduced by "restricting drastically" the southbound transfer of power on the HVDC.

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