Brownlee can't promise power prices will drop

Gerry Brownlee says the Government wants to see more stability in electricity pricing. Photo / Herald on Sunday

The Government is confident its shakeup of the electricity market will slow increases in power prices ... but it is making no promises about them coming down.

Energy Minister Gerry Brownlee says changes planned in the biggest reform of the electricity industry in 10 years will stabilise prices, which have soared in the past decade.

They went up more than 70 per cent in the same time as the consumers price index rose 28 per cent, and households have been worst hit.

"I've never made bold predictions about prices falling but I have said we want to get more stability into pricing," Mr Brownlee said.

"Three times the rate of inflation is totally unacceptable. I'm confident that we can improve on that situation."

Consumer and business groups have welcomed changes as encouraging more competition between power companies.

But the Labour Party and Grey Power were scathing, saying the changes would do little to help consumers, particularly those on low incomes, to cope with expensive energy bills.

Legislation enabling the changes will be introduced in Parliament today.

Among the measures aimed at improving market behaviour is a plan to penalise power companies by making them pay customers $10 a week if savings campaigns have to be introduced.

"This is something we're resolute about," Mr Brownlee said. "If they want to avoid that cost they have to manage those resources better."

Lines companies such as Vector will be allowed to sell electricity, rather than just distribute it, and will be allowed to build power stations as well.

But they will be governed by strict conditions.

Vector said last night it was assessing the practicability of setting up a retail energy business which would compete with companies such as Mercury and Contact in Auckland

As part of the plan to impose competition where it is lacking, power generators will be required to put the equivalent of 8 per cent of electricity demand into the national market.

This could encourage the entry of new retailers.

Meridian Energy, one of the biggest dividend earners of all state-owned enterprises, is losing two of its plum Waitaki-system hydro dams to the North Island SOE Genesis Energy.

But it will gain a diesel-fuelled power station in Hawkes Bay.

The change is aimed at creating a better mix of northern and southern assets among the SOEs, but power industry insiders say Meridian has been targeted because it is seen as having mismanaged its lakes, leading to winter power shortages, most recently last year.

In a move welcomed by most of the industry, the Electricity Commission is scrapped.

It is replaced by the Electricity Authority, which Mr Brownlee said would have more teeth and would not duplicate work done by other agencies.

"What I want are better arrangements on the bureaucracy of electricity so it's very clear who does what."

The commission has been criticised for holding up urgent national grid upgrades.

Under the new system, the Commerce Commission will assess Transpower's major projects.