Price spikes force market rethink

By CHRIS DANIELS energy writer

Pressure from industry, trade unions and business lobbyists may have worked quicker than hoped, with Prime Minister Helen Clark yesterday announcing the prospect of significant changes to the electricity sector.

After a little more than a week of high wholesale power prices that forced some big users to cut back production, the Government has decided to act, aiming to bring more control into the sector.

In a separate development, Energy Minister Pete Hodgson yesterday announced the establishment of a committee of energy industry executives to co-ordinate a response should there be another dry winter.

The Major Energy Users Group says the New Zealand economy has been damaged to the tune of nearly $4 million by the latest price rises, which hit big industrial users who buy power on the volatile spot market.

Clark said the Government was considering significant changes to the market model developed largely by Max Bradford, Energy Minister under the previous National-led Administration.

She gave no details of what the changes might be, but they will inevitably mean more Government intervention in the largely unfettered electricity generation and retail market.

Changes could target the market as a whole, or concentrate on the three large state-owned power companies, Meridian, Genesis and Mighty River Power.

Major energy users, many of whom buy a portion of their electricity on the wholesale spot market, were joined last week by the country's largest trade union, the Engineering, Printing and Manufacturing Union, in calling for a range of Government interventions in the energy sector.

One of the more dramatic is the separation of the state-owned companies into their component generation and retail arms.

Major users say this would encourage the building of more power stations, but critics say the ownership of a retail base makes it easier for generators to raise the finance to build new stations.

Hodgson said yesterday that the Grid Security Committee would "plan and prepare" for this winter.

"I have made it clear to the industry that I expect it to take a more active leadership role this year in responding to the risk of a dry winter," he said.

The committee includes the chief executives of the big generators, along with the head of Transpower, which owns the national grid.

Hodgson said that because the committee had high-level representation, it could make substantial decisions that could be implemented promptly.

Users group chairman Terrence Currie is also on the committee, which will meet for the first time today.

The formation of the new body is seen as an acceptance that the Winter Power Group 2003, a similar body set up to assess dry-year risk and co-ordinate an industry and public response, was not high-powered enough to implement top-level change.