Industry calls for paybacks

By ADAM BENNETT

A group representing major industrial electricity users says businesses that have been forced to close or reduce production due to skyrocketing power prices should be compensated.

Energy Minister Pete Hodgson said this week that wholesale electricity spot prices, which have jumped 80 per cent, were higher than they should have been due to errors in the models that generation companies based prices on.

"The spot prices ... went crazy last Friday and stayed crazy for much of this week," Hodgson said on TVNZ's Holmes programme.

"The generators have been pulling their models, their stack models as they call them, to find out what was going on.

"They have fixed it."

Asked if they had been overcharging businesses, Hodgson replied: "In my view they have ... It is almost certainly accidental. It just can't happen again."

Major Electricity Users Group chairman Terrence Currie said Hodgson's comments were "a new twist".

"For the minister to now turn around and indicate that the models which the generators use have been the problem infuriates the energy intensive industries who have had to cut back production, costing them millions and millions of dollars," said Currie.

A number of companies who do not have long-term fixed price contracts, such as Carter Holt Harvey and Sealord, have closed their businesses or reduced the hours they work because of power price hikes.

"Are these generators now going to turn around and refund these overpayments back to these users because the prices in the market occurred by accident, not by the deliberate offer strategy of the generators?" Currie asked.

Meanwhile, generation companies have denied knowledge of errors in their pricing models.

Meridian spokesman Alan Seay said: "We're not aware of any problems with our modelling, and we certainly haven't changed our behaviour at any stage of the day."

Contact Energy spokesman Pattrick Smellie said Hodgson's comments were "surprising", and the company would need more time to "work out what the minister means".

"I don't think anyone in the industry would say the system is perfect, and certainly some things could be improved, but I'm not too sure what he is referring to here."

Genesis chief executive Murray Jackson said his company was unaware of any technical errors that had caused it to overcharge customers.

Prices on the spot market on Thursday fell to their lowest levels this month after Genesis boosted production at its 1000-megawatt Huntly thermal power station.

Last month, production at the Huntly station was halved to allow maintenance.

"Genesis understands that the market price levelled at $150 a megawatt hour after additional generation was brought in overnight to lessen the effect of the high-priced hydro generation," Jackson said.

He said the "crazy" spot prices Hodgson referred to on the Holmes show were a result of "hydro generators seeking to conserve water by bidding in high prices in an attempt to avoid having to be called into service".

The electricity sector has been blaming the lack of water in hydro lakes for the recent spike in prices.

During the past week, average spot prices at the North Island reference point of Haywards averaged $279 a megawatt hour (MWh), compared with $153 the previous week.

Spot prices for April last year at Haywards averaged only $77 a MWh.

Hodgson said this week that a board would be established to run the industry if companies could not agree on a structure to govern themselves.

He said national grid operator Transpower had decided to vote against the self-governance plan, and Meridian Energy had indicated its opposition.

The industry is involved in a referendum to decide the issue, and Hodgson said the process would run its course to the middle of next month.

Hodgson has indicated the Government is looking at wide-ranging options to fix what it feels are both short-term and long-term market failures.

- NZPA