Hodgson outlines Electricity Commission powers

By CHRIS DANIELS and REUTERS

Energy Minister Pete Hodgson has given more details of the new Electricity Commission, which he hopes to be in charge of much of the energy sector by the end of this year.

The Government said last month that it would set up an Electricity Commission to contract for power generation capacity held in reserve for dry periods when hydro-electric production, which supplies nearly two-thirds of New Zealand's needs, is constrained.

Hodgson told an Energy Federation conference in Wellington that he would introduce legislation in September to implement the new measures.

He expected plenty of opportunity for submissions during the select committee process.

Legislation setting up the commission should be passed early next year, he said.

New laws would give the commission a range of powers, including the ability to force generators to offer long-term electricity hedge contracts to the market.

The commission would take that action if it decided such a step was necessary to safeguard against under-investment in ordinary generation.

Another power granted to the commission would allow it to require electricity retailers (all of them now are also generators) and big power users to hedge a set proportion of their electricity consumption.

Hodgson said an interim board would be in place by August, with a view to establishing the commission in September and having a permanent board in place late this year.

All the commission members will be independent, which meant that no director, employee or significant shareholder in the supply side of the industry could join.

Hodgson cited the new ability of lines companies to invest in electricity generation as an important change in the electricity industry.

Under Hodgson's new rules, lines companies, such as Vector in Auckland and Orion, in Christchurch, will be able to generate up to 10 per cent of their total load.

This means Vector could now build a power station able to generate up to 150MW of electricity. The Clyde Dam generates 432MW and the Huntly power station has a capacity of 1000MW.

Contact Energy's general manager of electricity trading, Toby Stevenson, told the conference that price should be the key trigger for the release of any reserve electricity generation.

People could live with prices of $150 to $300 a megawatt hour but prices above that were not sustainable, he said.

"And when you get $700 a megawatt hour all hell breaks loose."

Prices this year hit peaks of more than $800 a megawatt hour, prompting big users buying power on the wholesale market to cut production.