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Electricity review must respond to business risk

Media Release Tuesday, October 9th, 2001

Electricity review must respond to business risk

Business still reeling from the effects of the electricity crisis that forced many into high priced supply contracts for up to three years, are looking to the present review to deliver effective and transparent solutions, the Employers & Manufacturers Association says.

Business bore the whole brunt of the recent power crisis, said Alasdair Thompson, EMA's chief executive.

"Deep misgivings over the performance of the wholesale market, and the extent that prices may have been manipulated, are not easily forgotten," Mr Thompson said.

"The situation at present where hydro lake levels are even lower than when the crisis was alerted, yet prices are nearly normal again, is adding to the misgivings.

"Co-incidentally during the 'crisis' the state owned electricity generators Meridian and Genesis took around 500,000 retail customers from a competitor driven out of the market by fantastically high wholesale prices for which it was insufficiently hedged, and after that wholesale prices began to drop.

"Such musings are of course just that with any suggestion of gaming by the generators denied. The Minister of Energy Pete Hodgson said during the 'crisis' the market worked well.

"Nevertheless net generators had an incentive to see wholesale prices soar to 35 cents/kwh and it is clear that thermal generation capacity was not used early enough in the year to prevent lake storage levels falling to critically low levels.

"New Zealand is heavily dependent on rainfall and melting snows for most electricity generation; with the low levels of storage we have at present, we could easily face brownouts next winter if we don't get the necessary rainfall between now and then.

"Serious electricity shortages next year would become an election issue especially if the current review fails to achieve the effective and transparent operation of our wholesale electricity market.

"Competition has to be increased in both generation and retail supply. Retailers may have to be separated from generators. The liquidity of the contract market has to be increased and/or generators compelled to offer hedged pricing at the same levels they make available to their own retail operations. Transpower has to have an incentive to provide optimal transmission capacity.

"Most critical is for business not only to see the market working, but to see how it works. Transparency in forward pricing is essential.

"The question of whether crisis generation can be adequately managed, even by an efficient and transparent market, has to be addressed. Unlimited price rises whenever a serious water shortage occurs may not be the option business wants.

"One alternative would be to pay a small extra levy used to fund emergency generation capacity, the supply of which would be tendered out.

"Energy Minister Hodgson has the responsibility to complete the electricity reform task the last Labour Government started over a decade ago."

Comment: Alasdair Thompson tel 09 367 0911 (b)

09 303 3951 (h)

025 982 024

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