Fran O'Sullivan: Energy too hot to handle

The Transpower fiasco - make that fiascos - is a gift made in heaven for opposition politicians in election year, if they have the wit to leverage it.

But politics aside, the prospect that New Zealand may face power crises is of such severity it should be on the radar screens for all businesses north of the Bombay Hills.

Last week the Government kicked Transpower's controversial $500 million pylon plan into touch until well after the election.

The prospect of farmers continuing to protest against the Whakamaru to Otahuhu upgrade was just too much for Prime Minister Helen Clark's poll-savvy Cabinet, despite a clear need to increase Auckland's power supply and avoid the danger of blackouts in future years.

Energy Minister Trevor Mallard took the political football from Transpower chief executive Ralph Craven and threw it into the hands of Electricity Commissioner Roy Hemmingway - with a signal that he does not want to see it back in play again until the middle of next year.

Fat chance.

The Government's wish will only become a given if rival politicians and public watchdogs - including the business sector - let Mallard get away with this self-serving politicking at New Zealand's expense.

Craven showed some mettle by warning that Auckland's power supply will be at risk from 2010 if Hemmingway's investigation into alternatives to the pylon project takes too long.

It was a risky move for an SOE chief, but a warning that must be heard.

It is clear that Auckland came perilously close to another power supply disaster early this year as demand surged in the wake of a late summer heat wave. Local body officials were privately asked not to ramp up consumer fears. But there were some tense moments before the danger period subsided.

Mallard has said the Government wants Hemmingway to take a broad approach. This includes looking at building power stations closer to Auckland, controlling demand and other transmission lines options.

But Hemmingway himself - as this writer can attest - foresaw just such an eventuality as far back as last October.

The question is why six months had to elapse before Cabinet ministers agreed - in public - to put rival options for ensuring security of power supply for New Zealand's financial powerhouse squarely on the table.

There can only be one response to that rhetorical question.

The Government must have wanted to avoid public flak from residents of Whangarei and Otahuhu - not to mention a potential coalition partner in the Greens - if proposals which involved a coal-fired power station surfaced as a credible alternative before the election.

This is fast-and-loose stuff.

The security of New Zealand's long-term power supply is a major concern for business as the Herald's annual Mood of the Boardroom survey has repeatedly revealed.

CEOs responding to the March 2004 survey put it top of their list of issues. CEOs ranging from Carter Holt Harvey's Peter Springford, Fletcher Building's Ralph Waters to Fonterra's Andrew Ferrier agreed that the major issue facing New Zealand was not regulation but a looming energy crunch.

Among concerns: Capital that should be invested into R&D and growing value-added businesses would be diverted if they were faced with having to find alternative power sources to maintain growth.

As one well-respected CEO put it: "It's a serious issue, and clearly with 1000 years of coal in the place if they [the Government] weren't all handicapped by Greens and tied up with Kyoto ideology, you'd build a reliable coal power station. It would add to your base-load and it wouldn't matter whether it rained or not."

They wanted the Government to get involved with this "critical economic" issue rather than focus on peripherals such as sustainability.

The problem is that the electricity sector is neither fully privatised nor under the state's thumb from a central planning perspective.

The industry admits this and says if the Government wants to run with the rival alternative - new power plants in Auckland and subsidised energy efficiency measures - there will need to be recourse to central planning to bring it all together.

Hemmingway concedes he does not at this stage "have the tool box" to put in place any alternative to Transpower's pylon option.

Craven has personally taken a lot of heat - even though the transmission upgrade issues date back to his predecessor Bob Thomson's time as chief executive.

Behind the scenes, Craven has been singled out as the culprit for a communications "cock-up" through deploying staff to "negotiate" when the real decisions on the grid upgrade had already been taken. He has also been criticised for bringing in high-priced consultants when his staff could not take the heat.

Scuttlebutt - much of it reminiscent of the last week's unsourced suggestions that Labour MP John Tamihere had been counselled to take psychiatric care - has percolated the industry.

Among the rumours: Craven's team was under so much stress that they would resign en masse, and suggestions that the CEO himself had been off in Australia job-seeking as the political furore built.

Such rumours deepened in a growing political vacuum.

But it is a nonsense to suggest that any major project would not have met with heated resistance. Just look at Project Aqua - Meridian Energy's $1.2 billion scheme on the Waitaki River - which was shelved despite a need to help plug the post-Maui gas field shortfall.

The reality is that without clear political leadership - which puts the need for new generation and transmission capacity to underpin New Zealand's economic growth - such schemes are doomed to failure.

As energy consultant Brian Leyland has pointed out, the clear market failure should have been tackled 10 years ago. But it wasn't.

Meanwhile, Finance Minister Michael Cullen - who has tackled banks over their structured finance deals - is left in an invidious position trying to justify a cross-border lease he effectively signed off at Cabinet level enabling Transpower to book a one-off $34 million profit. It is not a good look for either Cullen or the company.

The opposition has a tiger by the tail - but do they know what to do with it?