Editorial: Much to do to fix power problems

Before we all join Energy Minister Pete Hodgson in a collective sigh of relief that the electricity crisis is drawing to an end, we should reflect on the fact that our salvation is only as good as the weather. And we know how fickle that can be.

Mr Hodgson has urged that the country pull together for another week to save sufficient power and avoid the possibility of blackouts.

That week of constraint would, he says, help the hydro lake levels stabilise. Warmer weather would then take us in to the spring thaw, putting vastly more water in to the lakes than recent rain has delivered. But he has also warned that if the expected inflows do not occur, we could face the same problems next year.

That is an unsatisfactory state of affairs. Not only does the country need certainty of supply, it needs a measure of price stability. And the events of the past few months have delivered neither. Industry has been affected, and every large user who has not had the protection of a hedge contract has been stunned by huge power bills.

Management of our hydro and thermal generating resources is one issue. The top-level review of the crisis, details of which will be released next week, is a perfect opportunity to evaluate how good that management has been. The state of the lakes suggests that, at the very least, it left a little to be desired.

If the review finds, somewhat lamely, that no one predicted the weather, then power users will have every right to shake their heads. Weather is always unpredictable in this country and power generators should accept that their job is to factor in the vagaries of our climate.

The other issue will be more thorny. It relates to the structure of the power industry and its pricing formulas. Both need close examination. The retail market is now dominated by the four big generators, three of which are state-owned.

That presents the Government with a dilemma. It has large and powerful lobby groups baying for blood over the effect that operating in the spot market has had on their power bills. Yet it cannot interfere in the commercial operations of Meridian, Genesis and Mighty River and has, quite rightly, been reluctant to regulate in what was designed to be a competitive market. However, that market has already become less competitive with the acquisition of retail companies by the generators.

Real competition should protect customers from the effects of price spikes, but the system that today controls the spot market does the opposite. It is a great leveller but it puts every generator on the highest price. In those circumstances - or, rather, in circumstances in which the spot market is being used to the maximum as has been the case of late - competition becomes nonsense.

In essence, every generator receives the equivalent of the last, and highest, quote for every half-hour block of energy. It has to be the ultimate in windfalls.

The crisis should not be seen as a reason, or even an excuse, to reinvent the energy sector. Certainly it should not be seen as an opportunity to return to the non-competitive days of state control. The review should first establish what, precisely, happened, what contributed to the causes and what must be done to avoid them in future.

It will probably find that there is little wrong with the fundamentals but the devil is in the detail. The complex area of electricity pricing, and in particular the spot market, must come under scrutiny, as should the operating relationships between the generators and their retail subsidiaries.

Mr Hodgson is right to also point out that consumers need to look to their own performance and to make permanent some of the energy savings they have achieved over past weeks. Every unit of energy saved can contribute to the country's wealth, either through reduced overheads or by taking energy from an inefficient use and placing it at the disposal of a more productive purpose.

The electricity industry is like a car with a smoking exhaust, a nasty engine knock and a tendency to die on the hills. It needs an urgent visit to the mechanic, but not to the wrecker's yard.

Feature: Electricity

Energy Efficiency and Conservation Authority