Reward for turning off in power crises

Aucklanders were asked to cut their power use in 2003. Photo / Richard Robinson

Consumers' efforts to reduce electricity use during power crises will be financially rewarded under a scheme unveiled by the Electricity Authority yesterday.

During a public conservation campaign like those in 2001, 2003 and 2008, residential and small business consumers will be paid $10.50 a week in compensation.

Individual consumers will get the payment whether they reduce their consumption or not.

But the previous system created a bigger free-rider problem, the authority argues.

Electricity retailers exposed to high spot prices in dry years have had an incentive to call for public conservation campaigns even when the risk of an actual physical blackout was still quite low - as low as a probability of 1 per cent - the authority's chief executive, Carl Hansen, said.

By removing the free option of relying on public-spirited consumers to voluntarily cut back their demand, the scheme would encourage power companies to make more use of commercial arrangements to manage dry-year risk and to invest in peaking plant.

The arrangements could include contracting with their larger customers to buy back demand using hedges to manage risk.

The result should be fewer public conservation campaigns, which have undermined confidence in the robustness of the electricity system, and investment that relies on it, to an extent that is not justified, Hansen said.

A conservation campaign will only be triggered when there is a 10 per cent probability of physical shortages.

Electricity retailers will be free to offer their customers alternatives to the $10.50 a week scheme but they will have to offer that default option.

Powershop executive Ari Sargent is critical of the scheme, saying it has not been justified by any transparent cost/benefit analysis, will push up electricity prices, and will have the anti-competitive effect of deterring new retailers from entering the market.

"A smaller retailer such as Powershop, with a customer base of 25,000 and no generation business, would have to shell out $2 million over an eight-week conservation campaign. As a low-margin business this would significantly and negatively impact us, and would almost certainly deter new entrant retailers," he said.

Powershop is wholly owned by Meridian Energy, but Sargent said it operated independently and offered a new entrant's perspective on the issue.

The authority argues that in a dry year the scheme would increase the incentive for retailers to pay the wholesale prices required by thermal generators earlier than they might otherwise, thereby reducing the risk of shortage.

But Sargent said the flipside of that would be higher wholesale and ultimately retail prices.

POWER BILLS TO RISE FOR VECTOR'S BUSINESS PARTNERS

Vector's business customers face a rise in lines and transmission charges of between 3 and 4 per cent.

The charges will mainly hit small and medium-size businesses from April 1. Auckland householders have been spared increases this year.

Across its entire network, the average increase in Vector charges is 2.6 per cent comprising an inflation-linked 1.2 per cent from the lines company and 1.4 per cent of "pass-through" costs from Transpower, and local and central government levies.

Energy costs make up about 60 per cent of a bill, lines companies such as Vector make up about 30 per cent and pass-through costs the remaining 10 per cent.

This year Transpower transmission costs have increased by 5.5 per cent, which reflecting the big spending on the national grid through Auckland.

Vector chief executive Simon Mackenzie said the increases were linked to the rate of inflation permitted by the Commerce Commission under the thresholds regime.

- Grant Bradley