KEY POINTS:
The power crisis has been officially called off. Remember the power crisis? Some time before the rain set in, which seems an eternity now, the country was given another alarm about its electricity supply. An unusually dry spring and a long, hot summer had left lake levels low and hydro power would have to be supplemented by more expensive oil and gas generation through the winter. There was never a shortage of power, there was a rise in its price, though not for retail consumers.
So why was the alarm sounded? Why were the authorities putting messages on television urging households to conserve power? Politics was the main reason. This is an election year and the National Party liked the idea of a crisis. Its energy spokesman, Gerry Brownlee, feasted for weeks on falling lakes and an Energy Minister "in denial". Eventually the minister, David Parker, succumbed with a power-saving campaign that he tried to present not as a crisis but "just another step along the way when you have a dry winter".
It is hard to believe that just seven weeks ago we were contemplating a dry winter. It is easy to be wise in hindsight but, really, the power supply was never at risk. The worst that would happen would be cuts in industrial production in response to higher wholesale power prices. Panpac, for example, reduced production by 40 per cent from early May to mid-July. Its managing director, Doug Ducker, said this week that users suffered a "pricing crisis", not a supply crisis.
That, of course, did not make him any happier. "We've had four out of eight years of what we used to call one-in-100-year events," he said, "so that story is wearing a bit thin." Industry, naturally, would like electricity prices to be stable, predictable and as low as possible. It can have stable and predictable prices by buying power on long contracts but it obviously pays bulk users to buy some of their supply on the more volatile spot market too.
The interests of industry are not identical with the interests of a national economy. An economy is an engine that needs to be finely tuned to get the maximum performance from it. Tuning is best done by ensuring markets set prices that reflect the scarcity of a resource and the varying value of its different uses. If the market is sufficiently competitive, the price should be right.
Is the electricity supply sufficiently competitive? It is suspicious that the question is raised only in dry seasons, when spot prices should rise. If power generators were routinely collaborating to extract excessive prices from bulk consumers, we would be hearing their complaints at other times too.
The prices produced by a succession of dry seasons ought to be attracting much more investment into extra power generation. Unfortunately, the present Government took fright after one dry season and set up an Electricity Commission charged with buying "reserve capacity" so that power never runs out. More recently, its preparations for climate change have discouraged further fossil-fuel developments.
The power companies put new generating schemes on hold and the Resource Management Act put paid to others. Consequently, investment probably has been too low, and prices overall too high. But the solution does not lie in specious crises and needless conservation campaigns. It lies in letting prices work and giving power companies clear and consistent environmental rules within which they might make the necessary investments.
But even then, prices will fluctuate with the weather. It would be economically unhealthy if they did not. When it happens, we do not need political alarms. The reliable story will be in the power bill.
