KEY POINTS:
The country is parched, hydro lakes are low and headline writers are using words like "crisis" and "blackout threat". The chair of the Electricity Commission may be starting to feel like a hot seat.
David Caygill, its occupant since October last year, cannot make it rain, of course. His job is to advise the Government whether the system has sufficient reserves to get through the winter - at this stage the advice is still that it has - and to participate in the National Winter Group, the industry-wide body which will have to manage the issue.
But from a longer-term perspective the commission's responsibilities are fundamental to keeping the lights on.
One of its core functions, perhaps the most important, is to approve investments in the transmission grid, based on its view of how demand and supply of electricity might evolve, and the state of the grid is a key input to the investment decisions generators make.
Another central function is to ensure electricity markets work properly. Caygill is a regulator who believes in markets.
He was, after all, a member of the radically reforming Labour Government of 1984-1990, minister first of trade and industry, then health, then Roger Douglas's successor as Finance Minister.
That doesn't mean he has an ideological conviction that whatever the problem, the solution is a market.
"But I'd like the country to have slightly more confidence than I think it has that the basic structure makes sense. We've got a tendency to be anxious about some of the inherent uncertainty - or you could say flexibility - about the parts of our system that we call the market.
"Prices move. Today they are higher than they were a month ago. And sometimes people think that is a problem. It makes them uncomfortable."
Spot prices on the wholesale electricity market have doubled over the past month. But there is a very good reason wholesale electricity prices need to be higher at some times than others, Caygill said.
To the extent that they reflect hydro generators opting to conserve water, on the grounds that it will be more valuable in a few months' time, the higher prices lead thermal generators to offer more power to the market than they would normally do at this time of the year.
The occasional spikes in the wholesale price are the only way a "peaking" plant can cover costs in the absence of a separate payment for having such a plant available to the system.
The possibility of introducing a system of paying generators to make peaking capacity available is one of several possible refinements to the market which the commission will put up for discussion later this year as part of a review of the market, which has now been operating for 11 years.
The 10-year moratorium on the building of new thermal power stations, which the Government announced as part of its energy strategy last year, only applies to baseload plant, not to peaking plant designed to be reserve capacity for times when normal supplies are inadequate.
The energy strategy also includes a target of increasing the share of generation from renewable sources to 90 per cent of total generation by 2025. The commission was consulted before the Government made that call, and regards it as a practical goal. "It's not a flight of fancy," Caygill said
The commission did not see a greater focus on renewables as inherently more risky.
"You don't get from where we are now to where we might be in 20 or 25 years in a single bound. People make decisions as the months and years unfold, influenced by what other parties are doing," he said.
"If the system were to become less secure and you got to the point of thinking, 'Well, that's significant risk', then you would take action - change the rules or look at commissioning [reserve] plant like Whirinaki."
But security of supply always has to be balanced against another element of the commission's riding instructions - keeping downward pressure on costs.
"Engineers have the concept of n minus 1; in other words that the capacity of the system should be enough to cope with the largest single unit of generation being removed. We don't build or run the system for n minus 3, that would be outrageously expensive," he said.
"So if something worse than the largest single unit going down happens you have to manage the demand side."
Caygill's former role as a director of Infratil, the major shareholder in Trustpower, has shown him how generators make investment decisions. "They are much less influenced by what is happening now and much more by what is the likely path of prices over the life of the investment."
Policies like the moratorium on new gas plant and the emissions trading scheme - assuming Parliament passes them - will influence those decisions. As will what projects the commission approves for upgrading the national grid, much of which was built in the 1950s and 1960s. Greater reliance on renewables also puts extra stress on the grid as generation has to be located where the resource is rather than where the consumers are.
"I don't think there is an infrastructure deficit in the sense that people who should have known better sat on their hands and wilfully neglected what they should have been doing," he said.
Since the commission was set up four years ago it has approved $1.2 billion worth of transmission investment. The two biggest items are a controversial new line across Waikato and a replacement switchyard at Otahuhu. The commission is working with Transpower on five projects at the moment.
One relates to the Wairakei area in the central North island and is of particular interest to generators looking to develop geothermal projects. The HVDC link between the two islands is another.
The others relate to north Auckland and Northland, the west coast of the South Island and the far south, where some major wind projects are planned.
Caygill rejects the idea that subjecting such projects' economics to independent scrutiny can unduly delay them.
"The only alternatives are that Transpower just does what it likes - and nobody is suggesting that would be sensible - or what we had before, which was simply a lack of agreement about what should be done or how it should be paid for."
A degree of tension between a relatively new regulatory body and a monopoly like the national grid operator Transpower which it regulates is only to be expected.
And that was evident under the commission's former chairman Roy Hemmingway and Transpower's former chief executive Ralph Craven.
The commission knocked back Transpower's initial proposal for a 400kv line across Waikato. A modified proposal has been approved but is now subject to appeal, as is the Otahuhu switchyard upgrade.
The appeals would be the first opportunity for the court to review the commission's procedures.
"It is the major [electricity] users who have asked the court to have a look at the commission's decision to approve the Otahuhu upgrade. It is precisely the people who will be paying the largest share of the cost who want to argue about whether the cost is appropriate," he said.
"Well right there in a nutshell you have the rationale for the commission. Someone needs to draw that balance."
DAVID CAYGILL
* Electricity Commission Chairman
* Born 59 years ago in Christchurch, where he still lives.
* Married for 33 years, with four children.
* A lawyer, educated at Canterbury University.
* An MP for 18 years, retiring in 1996.
* A minister in the fourth Labour Government between 1984 and 1990, of trade and industry, then health, then finance.
* Chaired an inquiry into the electricity industry in 2001 and the subsequent attempt to set up a self-regulatory model of the industry. The Electricity Commission results from the industry's failure - by a narrow margin - to agree on such a structure and the rulebook by which it would operate.
* Chairman of the commission since October last year.
