Contact fights shake-up

By CHRIS DANIELS energy writer

Government plans for further energy reform will hinder the construction of urgently needed new generation capacity, says Contact Energy, New Zealand's largest listed power company.

The energy industry is still reeling from the Government's announcement that significant changes are planned for the sector, which has been constantly reformed and restructured, deregulated and reregulated over the past 15 years.

Energy Minister Pete Hodgson and Finance Minister Michael Cullen yesterday expanded on the Government's ideas for reform, saying power prices could rise if people wanted security in dry years.

The move comes after a week of high prices on the wholesale spot market forced some big industrial users to cut production.

These prices were caused by a combination of high demand for power, a conservation of water in southern hydro lakes and lack of assurance about new generation.

Hodgson confirmed that one possibility was the establishment of a centralised Government agency to buy and sell electricity. That would mean the death of the wholesale power market introduced in 1996.

Contact chief executive Steve Barrett said the plans for change threatened to further delay the building of new power stations, which were waiting only for new gas contracts to be signed before getting approval.

"Until yesterday, we would have been prepared to green-light an investment as soon as we had certainty about gas supplies. The Government needs to be very careful that it does not take actions that hinder new investment."

He said the lack of new investment in electricity generation had nothing to do with the wholesale electricity market structure and everything to do with the uncertainty about future fuel sources.

One suggestion doing the rounds of the power sector would have the Government turning national grid owner and manager Transpower into a crown agency, rather than remaining a state-owned enterprise.

Transpower last year paid an $80 million dividend to the Government, all the while attracting criticism from some generators for not spending enough on improving the national grid.

Cullen, when asked if the future role of Transpower was being considered, said he did not want to "include or exclude specifics".

"The fact that we have got the second dry year in three suggests again that perhaps there is a systemic problem in terms of whether we have sufficient reserve capacity, which is what you might expect to happen with a fully marketised system.

"I'm not happy with that situation continuing."

Hodgson said it was far too early to say the situation was "anything resembling a crisis".

"We've got to decide as New Zealanders whether we want to avoid dry-year risk and pay a little more for our electricity for that avoidance.

"Do we want more security for which we are prepared to pay a slightly higher price?"

Contact shares closed yesterday at $4.45, down 2c.

- additional reporting: Vernon Small and Francesca Mold