Big users fear Government plan will boost power price

By JIM EAGLES

The Government's master plan for the electricity industry was unveiled yesterday and immediately sparked business worries that it will lock the country into a future of higher energy prices.

The Major Electricity Users Group was particularly concerned that the spot prices forecast in the plan would represent a considerable increase.

And the Employers and Manufacturers Association described the trigger price at which the planned electricity reserve would kick in as worryingly high.

The focal point of the announcements by Energy Minister Pete Hodgson was the membership of the Electricity Commission, which will preside over the industry.

It will be chaired by American Roy Hemmingway, who has spent the past few years doing similar work in Oregon.

The commission's five other members include a lawyer, two engineers, an economist and a local body politician. All have been involved in various aspects of the electricity industry.

Hodgson said he was confident the commission had the balance of skills necessary to meet the Government's objective to "have power delivered in an efficient, fair, reliable and environmentally sustainable manner to all consumers".

But for business most interest was on an accompanying policy statement from the Government filling in the details of just how the commission is expected to work.

The most anxiously awaited points in that are:

* The commission will be expected to arrange a reserve energy supply of up to 1200 gigawatt-hours over a four-month period.

* That reserve capacity will be brought into play once the wholesale spot price reaches 20c a kilowatt-hour (though the commission may act sooner if it feels hydro lake storage levels are too low).

* The commission will have to work out the details of a levy on wholesale power purchases to cover the cost of the reserve generation.

* It will also have to produce a policy for transmission charges to provide funding for improvements to Transpower's national grid system.

* The Government has toughened up earlier indications that generators may be required to make a set proportion of their capacity available in compulsory hedges.

The Government has already begun the process of creating the reserve by agreeing to pay state-owned generator Genesis $100 million to build a 155-megawatt thermal power station, probably at Whirinaki, as part of the dry-year reserve.

The 1200 gigawatt-hours over a four-month period it is asking the commission to find is roughly equivalent to 400 to 500 megawatts of thermal plant generation.

In other words, two more plants of the size of the Whirinaki proposal will be needed to meet the reserve requirement.

But that will not necessarily involve building new plants as the commission may also contract for "plant that would otherwise be mothballed or retired".

Ralph Mathes, executive director of the users group, said his initial calculations suggested power users could face a bill of $60 million a year in standing charges "on capacity that may never need to be used".

The Government has said that supply will be ring-fenced as reserve energy in order, it hopes, to "minimise any impact ... on incentives to build ordinary generation".

Probably the most anxiously awaited announcement yesterday was the setting of a wholesale spot price of 20c a kilowatt-hour as the trigger when the reserve capacity will come into plan.

By way of comparison, the Government said it expected the spot price to average 6c to 7c over time.

That figure disturbed Mathes, who said it represented a considerable rise from the "4c, 4.5c, 5c we've been assuming.

"Where has that come from?" he asked.

"Is that the effect of Kyoto and the dry-year levy?

"It would certainly represent an end to the competitive advantage we've enjoyed in electricity prices.

"In Australia, for instance, their forward prices three to four years out are below 4c."

The 20c price also concerned the chief executive of the employers association, Alasdair Thompson.

"That's quite a high price, and certainly not one manufacturers would want to be paying for long," he said.

"But if the effect of this is that the price is capped at 20c then it's certainly a lot better than what we've had in the past."

Electricity industry representatives contacted last night said they would need the full details of the policy decision before they could comment.