Meridian fears supply turmoil

The South Island's electricity supply could be compromised by moves to divide the Waitaki River hydro scheme between two operators, Meridian Energy has said. Energy Minister Gerry Brownlee, however, has played down the suggestion.

The State-owned power company is set to lose two of its Waitaki power stations to North Island State-owned enterprise Genesis Energy under the Government's electricity changes.

The two stations, Tekapo A and B, sit at the head of the Waitaki hydro chain and are strategically important. Under the changes, Genesis would gain control of Lake Tekapo, with Meridian retaining Lake Pukaki.

Meridian's South Island dominance would be reduced from 70 per cent to 50 per cent.

In a letter to shareholding ministers Bill English, Steven Joyce and Simon Power during discussions before the reform was announced, Meridian chairman Wayne Boyd said that shared management of the scheme would have "significant implications" for the company.

The station losses would reduce its average annual generation output by about 8 per cent, and cost $74 million a year in energy revenue.

Boyd said Meridian would have to hold Lake Pukaki at higher levels to counter the risk to supply security, resulting in a greater likelihood of spill and efficiency loss. A Cabinet paper estimate of a 1 per cent efficiency loss was "very conservative".

"A 3 per cent loss of efficiency equates to about 360 gigawatt hours per year, which is about the entire output of the newly constructed West Wind wind farm in Wellington," he said.

"This has the potential to compromise South Island security of supply."

Meridian spokesman Alan Seay said yesterday that "harmonisation" was unlikely with separate companies managing the storage lakes. Each company would be operating to its own commercial imperatives.

The Energy Minister said yesterday: "Meridian has an incentive to emphasise the difficulties and costs inherent in the reforms in order to lower the performance expectations of shareholding ministers."

The two companies would be required to make a water-management agreement, similar to Genesis and Mighty River Power's joint management of Lake Taupo. If the companies could not agree, the conditions would be determined by ministers.

"Ministers, like Meridian, will clearly want to ensure that security of supply and operational efficiency is not compromised."