Electricity Commission head attacks Government deal

By PAULA OLIVER

The first public tiff between the Government and the man it appointed to keep an eye on the electricity sector has seen Roy Hemmingway stake his claim for independence.

Hemmingway, the American chairman of the Electricity Commission, spoke out against the Government's decision to take on some of the risk of state-owned power company Genesis' building of a new power plant.

He said the decision would raise questions about the Government's role in the electricity market and that was a big concern for private investors.

"The country does need new generation. But we also need to consider the long-term interests of the country and where the investment in new generation will come from in the future," Hemmingway said yesterday. "If the Government is in a role of backing SOEs, we may have problems in the future getting investment from places other than government."

The spat is a result of the Government's revelation that it had entered into an agreement with Genesis to help get a new $520 million power plant off the ground.

The plant, which will be built next to a station in Huntly, was a shaky commercial proposition because of the uncertainty of a long-term gas supply to help fuel it. But the Government had agreed to compensate Genesis in the event it was unable to secure the gas that it needed.

Hemmingway said he had no input into the decision until it was "largely made".

He voiced his concern to ministers then but had no effect.

"It is a disagreement. But when the Electricity Commission was formed we were told that we were to act independently of a government and so we are acting in that role."

Hemmingway said he often saw representatives of investors who indicated that their primary concern was the extent to which the Government would intervene in the market.

Accusations of SOE favouritism flew around the industry yesterday, with the Electricity Networks Association backing Hemmingway's comments and the National Party wading in with its own criticisms.

ENA chairman Warren Moyes said the industry was in serious need of private investment, and the decision to offer favourable terms to one of the Government's own players was not the best way to deal with the situation.

National's John Key said questions needed to be asked about why the deal was done behind closed doors, why the circumstances were considered special and what it meant for private sector operators who faced the same risks on gas supply.

"Why didn't they tender for it?"

An angry Energy Minister Pete Hodgson fired back at the criticism, saying the deal was a one-off that was in the national interest.

"How many combined cycle gas turbine plants do you know on the blocks? There is one, that is it," Hodgson said.

Asked if Hemmingway's comments had stung, Hodgson said he was comfortable because they proved the commission was an independent voice - a point he had tried to make for some time.

He thought Hemmingway's position was valid, even though he didn't agree with it.

"I think he's in a way sounding a warning so that the Government doesn't ever get into the habit of doing this as a normal thing," Hodgson said. "We know that we won't."

The Government has refused to release details of its agreement with Genesis, citing commercial sensitivity. That leaves the industry and taxpayers in the dark over the size of the Crown's liability. Officials are in talks with Genesis about possibly releasing more information.

Hodgson hinted that the share of risk was a minority one. As for the accusations of favouritism? "We are absolutely colour-blind as to whether it's an SOE or not."