Restrictions on lines companies too tough, says group

Under reforms due next October, the country's 24 lines companies will be allowed to sell electricity to try to encourage more competition.

Electricity Networks Association chief executive Alan Jenkins said the restrictions requiring a separate lines and retail business were too onerous for most.

"The first thing we'll do is lobby hard for more reform. From what I can make out there'll be very little interest in doing it if they have to set up an arm's length business."

Parallel boards and management were costly to set up.

Bigger lines companies were in a better position given their resources, although there was a prospect that smaller companies could merge their retailing arms.

"In the pre-Bradford days the trend was to get together and do things collectively. That would be the way to go if you felt there was enough momentum."

Jenkins said before the 1998 reforms introduced by Max Bradford there were concerns lines companies would favour their own retail electricity customers but given the strict Commerce Commission controls over pricing and performance there "was no real risk of that happening".

The country's biggest lines company, Vector, says it is open to investigating retail opportunities. Vector is 75 per cent owned by a community trust and the appeal of buying power off a locally owned company, with the prospect of dividends from profits, would be an incentive for customers to support it.

But listed TrustPower says there are serious flaws.

Shuffling SOE assets was an acknowledgement that they had not been commercially incentivised to proactively enter into bilateral hedge contracts to reduce their regional energy purchasing risk, said chief executive Keith Tempest.

"It appears that in sheer frustration, the Government has had to force this upon them through legislation."

POWER POINTS

The shakeup of the electricity sector proposes:

* Transferring two South Island power stations from Meridian Energy to Genesis Energy, and transferring the government-owned Whirinaki to Meridian Energy.
* SOEs undertake"virtual asset swaps" through 15-year contracts to provide increased competition in the island where they have little to no presence.
* All major electricity generators contribute to an accessible electricity hedge market.
* Allowing lines companies back into electricity retailing.
* A $15 million fund to promote customer switching between companies.

Initiatives to increase security of supply include:

* Requiring gentailers to compensate consumers in the event of conservation campaigns or during dry-year power cut.
* Abolishing the reserve energy scheme.Lines companies will tread carefully before returning to electricity retailing, an industry group says.