Wary welcome for power plan

By CHRIS DANIELS energy writer

Power companies have reacted positively to the Government's plan for an Electricity Commission that would make sure New Zealand had enough electricity in dry years.

But many in the industry said they were still waiting for important details.

Contact Energy, the only one of the big four generator-retailers that is not state-owned, gave the scheme a cautious welcome.

Chief executive Steve Barrett said significant elements of technical detail had to be formalised.

"For example, the details of how the proposed security mechanism will be implemented will be critical to its success," he said.

He also singled out the Electricity Commission's power to require generators to offer long-term contracts up to a nominated proportion of their reliable capacity, and/or compel retailers and large users to buy long-term contracts.

It was important to understand the checks and balances associated with the use of such powers, said Barrett, because they could affect the incentives for generators and consumers to sign such contracts.

But he said Hodgson's announcements appeared to strike a reasonable balance between the need to maintain a competitive electricity sector "while dealing with the particular circumstances that New Zealand faces".

The Major Electricity Users Group, which has campaigned against high spot power prices, said the establishment of the commission could be a landmark decision for the Government if it had the power and vision to end extreme pricing and other flaws in the electricity sector.

Chairman Terrence Currie said the electricity reserve insurance premium should mean the end to extreme price spikes and should have little impact on average prices, because the generators charged premium prices in their offers.



And he said if the commission was given enough power it would make a difference "every day, not just in dry years when we need the reserve".

Mark Franklin, chief executive of New Zealand's biggest power lines company, Vector, said the company was interested in pursuing new generating opportunities, but needed more details of how the system would work.

Some of the most strident opposition to the Government's announcement came from Federated Farmers, which criticised "further meddling" in the electricity market.

Vice-president Charlie Pedersen said consumers would be the big losers from the Government's "intervention and control".

"Given New Zealand's reliance on hydro generation, it is inevitable that there will be significant increases in the spot price of electricity during dry years.

"This does not justify the Government requiring generators to have generation capacity lying idle for 59 years out of 60 years just in case."

"Generators will have no option but to pass these costs on to consumers in the form of higher electricity costs."

New Zealand's largest trade union, the EPMU, welcomed the acknowledgement that fossil fuels would still play a part in power generation, but said it was concerned at a continued reliance on the market to control supply.

Business NZ chief executive Simon Carlaw said the centralised commission was not ideal, but should produce some movement on dry-year power supplies and transmission constraints.

The scheme

The law will be amended to allow lines companies to own unlimited reserve generating capacity and up to 25MW or 10 per cent of their loads of ordinary generation.

To encourage the development of small generating projects connected to local lines, rather than the national grid, lines charges will be regulated to ensure such generators pay no more than is reasonable for connection.

The Electricity Commission will be able to require generators to offer long-term electricity hedge contracts for a nominated proportion of their reliable capacity.

This would happen if the commission decided it was necessary to "safeguard against under-investment in ordinary generation".

The commission will also have the power to require power retailers and big users to "hedge" or contract for a set proportion of their consumption.

The commission will be responsible for improving forecasts of electricity supply and demand. It will also have new powers to require disclosure of information from the industry to improve the function of the wholesale market.

It will establish as a high priority, a process that will enable necessary investment in the national grid.

The commission will be responsible for making exchanges which enable consumers to sell electricity they have contracted for but do not need, available nationwide.

It will also work on improving the industry's ability to manage ripple control for water heating.