Hodgson turns up the heat

By CHRIS DANIELS

The electricity industry has been given another wake-up call by Energy Minister Pete Hodgson, with the imposition of tight deadlines for more market reform and more threats of regulation.

Mr Hodgson, announcing decisions stemming from a review of the electricity sector which began after winter - when wholesale power prices rose dramatically - said reforms would be accelerated.



No major changes would be made to the structure of the industry or the wholesale electricity market, but power companies could be split and generators forced to put some production up for tender.



Mr Hodgson said progress had been made in attempts to refine the market and introduce more transparency, but not without "a lot of arguing along the way".

Some submissions to the review complained of regional market dominance by the big-five power retail companies and Mr Hodgson gave a warning on this.



"I am also advising the electricity industry that the Government expects effective retail competition - and if this does not eventuate, the Government will consider further measures, including mandatory tendering of hedges and separation of retail and generation business," he said.

Officials would "keep under review" requiring electricity generators to tender hedges for a percentage of their dry-year capacity.

This would mean each generator would have to put, say, 10 per cent of its total electricity production out to tender, meaning a rival retailer could buy this electricity and sell it on.

It is thought this could allow a rival to compete in an area dominated by a company that is a generator and retailer.

"Incumbent retailers are therefore on notice that mandatory tendering may be used to open up the market if competition is inadequate," Mr Hodgson said.

The "improvements" would shine light on the previously murky world of the wholesale electricity market, he said.

They include a requirement that offers of electricity into the wholesale market by generators be disclosed publicly two weeks after they are made.

Disclosure of "forward hedge prices" for electricity contracts will also be required. Systems to implement the changes would need to be in place by winter.

In a Cabinet paper issued by Mr Hodgson, officials argue there is significantly less retail competition in the power market since the demise of On Energy and the taking over of its customers by Genesis and Meridian.

The report says the retail market is dominated by five companies, four of which are significant power generators.



On Energy, the retail brand owned by NGC, collapsed during the winter when it was exposed to soaring wholesale power prices on the spot market.

Companies taking such a punt now knew they would not be saved by political interference from an Energy Minister, Mr Hodgson said.

Mighty River Power chief executive Doug Heffernan said his preliminary reading of the Government announcement had not shown up too many problems.

The company did not have difficulty with the requirements for more disclosure in the electricity market.

Contact Energy chief executive Steve Barrett said he supported the review's findings that the wholesale market worked much as expected, but that it could be refined and improved.

State Owned Enterprises Minister Mark Burton yesterday said the winter profits of the three state-owned electricity companies, including Mighty River, were down 15 per cent on the previous year.

He asked the SOEs to provide their profit results after Opposition politicians accused them of profiteering from high spot market prices.

Mr Burton said the figures were 38 per cent below budget, with a combined pre-tax profit of $78.4 million, against $126.1 million budgeted for July, August and September.