Power companies exaggerated power crisis

BY COLIN ESPINER - POLITICAL EDITOR

Meridian Energy's dominance in the South Island is likely to be curtailed after fresh findings that big energy retailers have been gouging their customers.

A second major review of the electricity sector has found consumers have been subjected to "excessive" price rises since 2002 and that residential customers have carried the burden for power-savings campaigns that should not have been necessary.

Energy Minister Gerry Brownlee is considering removing some of Meridian's South Island hydro assets in an enforced swap with the North Island's big state-owned generator, Genesis. This would introduce the country's biggest power retailer to the Mainland.

The asset-swap recommendation is in a report on how to improve the performance of the country's electricity market and follows a damning Commerce Commission finding several months ago that power companies had overcharged consumers by $4.3 billion since 2001.

A more radical recommendation, involving the virtual breakup of Meridian and the creation of a new state-owned enterprise (SOE), was yesterday rejected by the Government. The report, from a panel headed by consultant Brent Layton, says there is insufficient competition in the retail electricity market, particularly outside the main centres, and that price margins are higher than in Australia or Britain.

"The rate at which retail prices have risen, especially for residential consumers, appears excessive when compared to the increase in the cost of new supply," the report says.

It says consumers have participated in successive power-savings campaigns by major market players who stood to benefit from forcing down the spot price of electricity. The report says generator-retailers and large industrial users "talked up" the risk of power shortages in dry years to persuade the media and the Government of the need for public conservation campaigns.

"The effect of a conservation campaign is to lower spot prices, which reduces costs for market participants but pushes the inconvenience and cost of demand reductions on to consumers," it says.

Conservation campaigns created "undesirable and unnecessary levels of public anxiety" and increased risks and costs for businesses, the report says.

The panel found that despite years of "brownouts" and calls for savings, the country has enough electricity generation to meet demand, provided it is properly managed.

It says one of the major problems is that Meridian and Genesis have failed to co-operate to ensure the most efficient use of resources, particularly in dry years.

The report presents three options, the most radical of which would see Meridian lose both Tekapo A and B to Genesis, plus Manapouri to a new SOE that would also own the Huntly power station.

Another option was transferring Huntly to Solid Energy and Manapouri to Genesis, with Meridian getting Whirinaki.

Brownlee yesterday rejected both options, saying they would be too costly and would create too much upheaval in the energy sector.

A third option that involves an asset swap between Meridian and Genesis is under consideration.

Under that plan, Meridian would pick up Huntly's new gas turbine plants in return for giving Manapouri and the White Hill wind farm in Southland to Genesis.

The report says this would "reduce Meridian's dominance in the South island" and allow Genesis entry.

Brownlee dismissed suggestions the asset swap could present difficulties for Meridian.

The report's findings are open to public subsmissions for five weeks. Brownlee said he hoped to take recommendations to the Cabinet shortly afterwards and to draw up legislation for any amendments before the end of the year.

PROPOSED SHAKE-UP

Ministerial electricity market review recommendations include:

* Compensation for consumers of at least $10 a week in the event of public power savings campaigns or power cuts.

* Selling or moving the emergency diesel-fired Whirinaki power station in Hawke's Bay.

* Improving access to extra water in hydro lakes below consented minimum levels in dry years.

* Improving retail competition to restrain price rises.

* Transferring power stations between state-owned power companies to increase competition.

* Allowing lines companies back into retailing.

* Reducing the time required to swap power companies from 23 days to three days.

The public and the industry have until 5pm on Wednesday, September 16, to make submissions on the discussion document. The Government says final decisions on reforms should be made by the end of the year and it expects it will have to make law changes to implement recommendations.

- © Fairfax NZ News