Meridian gains as power prices rocket

By RICHARD BRADDELL

Rumours that Meridian Energy is negotiating to buy a substantial proportion of On Energy's customer base have brought "no comment" from both companies.

Meridian is thought to be negotiating for 110,000 South Island customers in On Energy's 450,000 customer base.

Neither side would confirm or deny the rumours yesterday, although Meridian spokesman Alan Seay said the company expected to get a reasonable number of On Energy's customers as they switched supplier to beat On's 16 per cent price rise, announced last Friday.

The sharp rise in wholesale prices, which has pushed Natural Gas Corporation's wholly owned subsidiary into multimillion-dollar losses, is becoming the next big test of the competitive electricity market.

Although the electricity retailers' performance in switching customers to new suppliers has improved from the abysmally low standards shown when lines companies were split from energy businesses, a fresh round of disruption seems likely because of the large number of customer inquiries reported by the generator/retailers.

Private investor-owned Contact Energy says it has had a significant increase in inquiries to its call centre, and SOEs Meridian and Genesis say they have had thousands of extra inquiries.

While Contact and Mighty River have matched customer demand and electricity production reasonably well, Meridian and Genesis can take on new customers without exceeding production.

Energy Minister Pete Hodgson is among those who question whether the market will cope with an upsurge in switching.

He is looking to the introduction of tighter rules and harsher penalties to give the companies an economic incentive to improve performance.

But while the market's functioning has come in for criticism from On Energy and TrustPower, Mr Hodgson is among those who says it is operating the way it was set up by National's Energy Minister, Max Bradford.

Mr Hodgson said this week that he could find no evidence of unfair market manipulation, but added that he was not inclined to put as much faith in pure market mechanisms as did Mr Bradford.

He suggested it was legitimate for the Government to indicate if supply was getting tight, as it did two weeks ago, using such indications to encourage people to adjust their energy consumption.

On Energy's plight appears to have attracted little sympathy in the market.

One commentator admitted to being stunned that it went into the winter unhedged.

On Energy's losses are unknown, but suggestions range upwards of $1 million a day.

Last Friday, rival TrustPower, which apparently has a much larger portion of its much smaller customer base hedged, said the spike in wholesale electricity prices was likely to more than halve its half-year profit from the $15 million reported last year.

Todd Energy subsidiary FreshStart, which took on the Wellington market in October, has also felt the squeeze.

After lifting prices 6 per cent, on Friday it stopped adding new customers to the 50,000 it already has.

But while the rejig of the market resulting from the wholesale price spike is likely to mean that generators have numbers of customers more closely aligned to their production, Mr Hodgson does not see the tension between generation and consumption that makes the market competitive disappearing.

That is because of New Zealand's unusual dependence on hydro generation, and the fact its long narrow lakes typically offer sufficient storage for only eight to 10 weeks' demand, compared with many months in overseas hydro systems.

Because the hydrological outlook is constantly changing, the market has a natural instability favours different generators at different times.