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“Landmark” Commission will end extreme prices

“Landmark” Commission will end extreme prices

The Major Electricity Users’ Group (MEUG) said today that the new Electricity Commission had the potential to be a landmark decision for the Government if it had the power and vision to end extreme pricing and other flaws in the electricity market/sector.

Terrence Currie, Chairman of MEUG, said the electricity reserve insurance premium should mean the end to extreme price spikes and in reality should have little impact on average prices as the generators already charge premium prices in their offers.

“The Commission should be able to substantially reduce the risk of running out of electricity in the future, so prices should stabilise. That risk will no longer need to be factored into the pricing of regular electricity supply.

“The cost of the reserve will probably be paid by all generators. This in turn will be passed through to all consumers. It is likely that the year-by-year need for this insurance cover will change depending on the view of the Electricity Commission about the likely risk of a 1 in 60 dry year, and hence the cost will change also. In addition, the cost of supply is likely to rise if the cost of fuels for new base-load generation increases,” Mr Currie said.

He warned that consumers would be watching the prices to ensure they were not paying twice, and that the cost of dry year reserves insurance did not blow out.

Mr Currie said that the most significant and revolutionary part of today’s announcement would turn out not to be the reserve but the Commission itself.

“Establishing an Electricity Commission as a specialist and expert organisation that will protect the long term interests of New Zealand may turn out to be a bonus for consumers.

“If it has the power to make strategic calls to promote and protect adequate supplies at reasonable prices of electricity for all classes of consumers, a Commission will make a difference every day, not just in dry years when we need the reserve,” he said.

He said MEUG was also encouraged by the possibility of getting an international expert as the Commissioner. An independent, knowledgeable person, empowered to act in the best interests of the country, will bring to an end the disproportionate influence of vested supply side interests.

There were still questions about how the reserve insurance would interface with the market, such as how the Commission would define when the reserve would be used.

He added that the public should not take today’s announcement as a signal that the current crisis was over – as consumption cut backs were still necessary to avoid running out of electricity during Winter 2003.

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