Power price rise sparks investigation

6.00 pm

Soaring wholesale power prices have sparked an investigation of generating company pricing and a switch allowing more power to flow from the North Island to the South Island.

Consumers have been warned to expect big price rises for electricity soon, with retailers saying they can no longer absorb significantly higher costs for the power they buy from generating companies.

The wholesale price of power leapt from 14.58c kWh to 21.82kWh last week, three times the average for this time of year. Generating companies blame low hydro lake levels and cold weather for the escalating prices but some retailers are crying foul.

As chilly temperatures continued and wholesale prices continued to rise there were two major developments today:

* The electricity industry's Market Surveillance Committee will investigate wholesale pricing and, also, review its security criteria for companies wanting to buy power. As power becomes more expensive retail companies will have to prove they can still afford to buy it.

* Transpower told Energy Minister Pete Hodgson that changes to the way the national grid works would enable it to send another 100 megawatts of power from the North Island to the South Island by June 22 at the latest.

The day began with the country's largest retailer, On energy, confirming it had asked the industry's independent Market Surveillance Committee to launch an inquiry.

On energy spokesman Bruce Thompson said the retailer was "looking at every avenue" to avoid having to put up prices to customers.

"We have made a request to the surveillance committee that they investigate the current market conditions to find out if anything is underlying the (recent high wholesale) prices, which is evidence of problems with the market."

About a third of all New Zealanders buy their electricity from On energy and its parent Natural Gas Corporation. However, NGC produces just 12 per cent of the country's electricity, meaning it buys most of its power on the wholesale market.

TrustPower said it would also go to the committee with its allegations that dominant, State-owned generator Meridian was forcing up wholesale prices.

The Market Surveillance Committee, headed by Sir Duncan McMullin, has the power to fine any generator, retailer or electricity trader who plays games in the wholesale market to force up prices.

Last year the committee investigated 136 complaints on a range of issues and imposed fines, costs and compensation totalling $661,276.

Meanwhile TransPower is changing the configuration of the national transmission grid, which is based on a South Island to North Island flow. Reversing the flow brings transmission constraints into play.

The work to overcome these constraints involves the installation of sensor and switching equipment rather than extra lines and is relatively low cost. An extra 100 megawatts of thermal-generated power will be delivered to Wellington and then sent on to the South Island.