KEY POINTS:
Business is licking its wounds as the country emerges from the winter of tight power supplies.
Lost production and the cost to some generators exposed to high wholesale prices to meet customer obligations will, according to previous dry year precedents, total hundreds of millions of dollars.
At the
extreme end of calculations the Manufacturers and Exporters Association says the impact of power savings is around a $3 billion loss to the economy.
The $2 million power industry-run advertising campaign to encourage reduced power use ended yesterday after savings of around 3.6 per cent by domestic users had been achieved during the past six weeks. Some major users, including Rio Tinto's aluminium smelter at Bluff and PanPac pulp shut down a chunk of production due to sky-high spot prices.
For much of the year the Electricity Commission has been forced to crank up its diesel-fired Whirinaki back-up power station, burning through $31 million by the end of June.
In the depths of the shortage in June the commission sought approval to charge users - invariably consumers via their suppliers - an additional security of supply levy of between $55 million and $165 million in addition to an annual charge of $94 million for the 2008/9 year.
An additional $80 million was approved by Cabinet for security of supply, although a commission spokesman said it would levy half of this.
"The commission has not chosen to the levy the industry the full $80 million for as time has passed the risk has reduced with the lakes filling, and the immediate need for the costs to be incurred has decreased. We don't want to levy the industry for costs that we may not incur."
Most of the additional levy would be spent on fuel for Whirinaki if necessary but the $40 million would be reviewed in the next two months and adjusted as necessary, he said.
Winter power group convenor and Transpower chief executive Patrick Strange said South Island lake levels were still low but the weather outlook was better and loads have been lower.
"The view is it's still tight but industry should be able to manage it."
Transpower will be hit by millions of dollars for the additional costs of contingency power it had to buy to supply to the market if part of its vulnerable interisland link broke down.
"It's had an impact on us financially because of the reserves market," he said.
Work on two major substations had also been spun out over weeks rather than in a shorter, less expensive block.
Strange said a repeat of this year's hot, dry summer in the north and dry autumn and early winter in the south was unlikely but weather was difficult to predict with certainty. Even without similar weather problems supply would be constrained around the lower North Island.'
'There's a lot of generation in the pipeline but unfortunately it's not going to be there for next winter. I'm pretty confident we're going to be able to meet those peaks but there'll have to be planning from now on."
In spring the commission plans a review how the power sector dealt with winter supply problems.
Business New Zealand chief executive Phil OReilly said he hoped it would not be led by bureaucrats.
"The best way to deal with this is to have an industry led conversation," he said. There were still serious supply concerns, especially into next year.
"We're not yet quite out of the woods [and] we're certainly not out of the woods for next year. If there was another dry winter you could have a much worse problem next year.
"The Government says that the energy market works because the price goes up. Fair enough but we don't think the market should work by closing industry down. The idea that industry should shed load was supposed to be a one in 60 year event."
PanPac reduced production by 40 per cent from early May to mid-July.
Managing director Doug Ducker said users suffered a "pricing crisis" rather than a supply crisis.
"So that was this year - we've had four out of eight years of what we used to call one in 100 year events so that story's wearing a bit thin."
Generators have been hit to varying degrees. In June TrustPower said low hydro levels and a lack of wind meant operating earnings would fall by about $15 million to $20 million for the year to March 2009.
The company has a large retail customer base and in adverse conditions must rely more heavily on the expensive spot electricity market to meet obligations.
State owned enterprise Meridian Energy early this year returned $236 million in dividends, including a special payment, to the Government for the first half of the financial year. It's not likely to be as rosy come reporting time in October.
Meridian is the country's biggest generator and most exposed to low southern hydro levels. A spokeswoman said winter had "been very challenging".
"It's been one of the driest years on record and this situation was exacerbated by a series of events in the autumn, from unexpected plant outages to issues with the HVDC."
Mighty River Power was hit by low levels of Lake Taupo and has kept its Southdown gas fired station running almost continuously since late last year, sometimes buying power to meet demand.
Spokesman Neil Williams, said inflows were the lowest in 80 years in late summer and autumn. "For us winter has been hard because of summer."
While most industrial customers were well covered by long term contracts, generators will pay the price.
"Ultimately most of the risk is covered by generators - that's the core part of our business."
Genesis had its coal and gas fired turbines at Huntly running almost constantly through autumn and winter. It was able to chew into a 1.2 million tonne stockpile of coal to help shore up supply.
DRY YEAR COSTS
$40m
Extra Electricity Commission levy
$2m
Industry conservation campaign
$100s of millions
Cost to business and generators
