Engineers question Waitaki power plan

Tim Lusk

Only once did laughter break out during the finance and expenditure select committee's three hours of hearings yesterday into the Government's plans to restructure the electricity industry.

A former member of the Electricity Commission, David Close, was surprised by Meridian chief executive Tim Lusk's full-throated support for the plan. "If the gentailers are happy with the bill, then it is not going to do what we want it to do," Close said.

"I'm not at all convinced you will get effective competition."

A key element of the plan, intended to increase competition especially in the south, is a combination of physical and virtual asset swaps among the three state-owned generators/retailers - Meridian, Genesis and Mighty River.

It means there will be two operators, Genesis and Meridian, in the Waitaki river system.

The Institute of Professional Engineers questioned whether the benefits of increased competition were worth the risks to an already stressed system.

But Genesis chief executive Albert Brantley said concerns about the possibility of inefficient water management, even spilling, were misplaced.

For one thing, less than half the water flowing into Meridian's main Waitaki storage lake, Pukaki, came from Tekapo (which goes to Genesis under the asset swap).

"And we have every incentive to use the water for generation and to do that we must put the water into Pukaki," Brantley said.

Lusk said a water management agreement between the two did not have to be complicated and could provide the flexibility Genesis needed to run its business.

"We are far enough down the track to believe the risks can be managed."

However, Contact Energy and Mighty River Power questioned whether an agreement to manage the Waitaki could be implemented within the intended timeframe of 12 to 18 months.

Mighty River chief executive Doug Heffernan had to conclude a similar, but possibly simpler, agreement with Genesis over the Tongariro/Waikato system when ECNZ was split up.

It took five years for that to be implemented, he said, because there were regulatory bodies involved, not just the power companies.

Contact general manager Liz Kelly argued that too compressed a timetable for the asset swaps would have the SOEs involved scrambling to buy market share at a time when retail margins were already compressed and prices needed to rise to justify investment.

Heffernan came close to questioning the need for the asset swaps altogether, pointing out that Mighty River, through its retail arm Mercury, had already been active in the south for a couple of years, despite having no generation assets there.

"We did not need an asset swap to make that work," he said. "We don't agree you can only retail where you generate."

He later added that if other players thought differently, however, it might be necessary to undertake the kind of reshuffling of the SOEs' assets that the Government intends.