Electricity users point to market risk

By RICHARD BRADDELL utilities writer

Anti-competitive jockeying between electricity generators and retailers may have forced higher costs on to manufacturers to the detriment of the economy, the Major Electricity Users' Group says.

In a letter to the electricity market's surveillance committee, the group's chief executive, Ralph Matthes, said there was potential for a generator to use the shortage of hydro storage to drive out retail competitors by predatory pricing at the wholesale level.

If so, "then the hardship borne by the manufacturers has been unwarranted and to the extent manufacturers have reduced production, then the NZ economy has also been unnecessarily harmed," Mr Matthes said.

The committee is investigating the wholesale electricity market after high prices inflicted $300 million losses on retailer On Energy, forcing it to sell a quarter of its customer base to Meridian.

Meridian is New Zealand's largest generator, but it is limiting its production to match its hedge positions because of low levels of the lakes that feed its dams.

Meridian has not explained how it expects to service the 116,000 additional customers it will take over from On Energy, given that all its present generation is committed to other supply arrangements.

Mr Matthes said businesses were under increasing pressure from energy retailers to accept spot market-related prices as the retailers attempted to protect themselves from high wholesale prices.

He estimated that businesses using little more than $5000 of electricity a year could end up on spot market-based pricing under arrangements notified by Mercury Energy.

Mercury said that from August 1, customers would move on to spot-related supply arrangements as existing contracts expired.

The new terms apply to customers who use more than 100,000 kWh a year.

Although Mercury has since advised Mr Matthes that it will negotiate new contracts, they will be at higher prices and it does not intend to roll over existing terms.

Mr Matthes said that most businesses, meanwhile, did not have the sophistication or access to market information to manage their consumption effectively on spot-related pricing systems.