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Repeat Of Electricity Market Failure Threatens

Repeat Of Electricity Market Failure Threatens; Can Be Fixed

Power users in the North Island have begun reporting huge price increases quoted by their electricity companies, the Employers & Manufacturers Association (Northern) says.

"We have examples of electricity users coming off three year supply contracts facing price hikes of 50 per cent or more than they have been paying," said Alasdair Thompson, EMA's chief executive.

"Price increases of this magnitude are excessive compared to the long run cost of electricity and in the absence of any crisis.

"These reports mirror the experience of South Island users who were recently denied power contract renewals on reasonable terms.

"The electricity market is rationing electricity to commercial users by forcing them to cut demand to meet supply limitations. Insufficient electricity is being made available at sensible long run prices, and this is leaving business exposed to a repeat of last winter's costly electricity price spikes.

"Remedial steps taken now would ensure the market is far more robust, without the need to go to full market regulation.

"The market over the past two years has seen considerable vertical integration. Generators and retailers have been balancing out their supply contracts against their customers' expected demand for power. Their objective is to earn the highest returns, minimise their exposure to spot market prices, and without sufficiently increasing their investment in power capacity.

"These exercises in building market power are being carried out at the expense of many of their customers.

"Users are also unable to plan how much power will cost them over the year ahead.

"EMA and Business New Zealand have put several proposals to Government which, if introduced in principle, would ensure unacceptable price spikes did not re-occur and that the market was strengthened. They are:

* Generators should be required to commit a block of their production to supply hedge contracts. * Resource access obstacles presented by the RMA are prohibiting the development of small scale hydro, wind power and distributed generation projects being brought into local transmission systems. These have to be removed to free up innovation, and address Kyoto emissions, as well as providing emergency back up power capacity. * If all else fails Government should separate generators and retailers.

"The internet site is also a new useful tool for businesses to keep up to date with power market changes to help them avoid spot market price spikes."

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