Sweeping energy sector changes announced

BY TRACY WATKINS

A $15 million campaign will be launched telling households to switch power companies if they are fed up with their prices and power generators and retailers will be forced to compensate customers for dry-year power cuts and conservation campaigns under plans announced today.

Legislation will be introduced to Parliament tomorrow introducing sweeping changes including:

* A $15 million fund over three years to promote customer switching between retailers;

* Requiring generators/retailers to compensate consumers in the event of conservation campaigns or a dry-year power cut. The sort of compensation being talked about is $10 a week;

* Transferring Tekapo A and B power stations from Meridian Energy to Genesis Energy and transferring the Government-owned Whirinaki power station to Meridian;

* Meridian, Genesis and Mighty River Power undertaking virtual asset swaps over 15 years to provide more competition in the island where they currently have little to no generation capacity;

* Requiring all major electricity generators to put in place an accessible electricity hedge market;

* Allowing lines companies back into electricity retailing;

* Abolishing the Electricity Commission and replacing it with a slimmed down electricity authority. A Security and Reliability Council will also be established to monitor Transpower's performance and advise on security of supply.

* Transferring responsibility for grid upgrade approvals to the Commerce Commission.

Energy Minister Gerry Brownlee said the idea that generators and/or retailers compensate consumers was one he saw as being particularly valuable.

"This will force electricity retailers to manage their own risk and means the risk of dry years will be diminished because power companies will be hit in the pocket when this occurs. Consumers will have the confidence of knowing they will get some cash back if they are ever asked to save power in the national interest."

A Ministerial Review earlier this year found that there was a widespread perception New Zealand had a fragile and vulnegable electricity supply system and said that was because New Zealand was vulnerable to dry years because of its dependence on hydro generation.

But the frequency of calls for public conservation campaigns over the last decade also contributed, it said.

It found that there was an undesirable incentive for market participants who were over-exposed to spot electricity prices to push for conservation campaigns, which depended on a sense of crisis to work. But while conservation campaigns lowered spot prices, consumers bore the cost.

The Ministerial Review also recommended an asset swap because of a lack of balance geographically; Genesis and Mighty River Power have no generation in the South Island and Meridian has little generation in the North Island. This had the effect of weakening competition, the review found.