NGC's pain leads to inquest in industry

By RICHARD BRADDELL utilities writer

Natural Gas Corporation's electricity market agony is over, but the cause of its humiliation - high spot electricity prices - will be fiercely debated at an industry meeting tomorrow afternoon called by Energy Minister Pete Hodgson.

Mr Hodgson said last night that the low level of South Island lakes - a key factor in the high prices - had worsened and he conceded that several businesses that had enjoyed low spot prices in the past three years had now run into trouble.

"The market system introduced by [National Party Commerce Minister] Max Bradford in April 1999 has just struck its first dry winter.

"As a result, many businesses who are exposed to the spot market are learning for the first time how volatile the spot price is. Some are in considerable difficulty."

Despite accusations that generator Meridian may be exploiting high marginal prices by limiting its generation, South Island hydro lake levels have continued to fall close to the levels recorded during the 1992 power crisis.

Amid rumours that TrustPower, with 5 per cent of generation, may be forced to join NGC by selling some of its 280,000 customers, some in the industry have urged the Government to separate retailing from generation to create a more liquid hedge market.

Business leaders complain that the pain is not confined to retailers and that high spot prices have hurt the economy as industry avoids high prices by reducing production.

One with no choice but to pay is Wiri's Clelands Cold Stores NZ.

Refrigeration accounts for 15 per cent of the 25-staff firm's fixed costs. On Energy told general manager Brian Simpson he could go on to spot market prices or find another supplier.

After paying less than $140,000 in the last year, he was quoted $205,000 by Contact and $161,000 by Genesis.

Even then, he would be locked in for two years and would be unable to take advantage of any lower prices.

In a letter to Mr Hodgson, Employers and Manufacturers Association (Northern) chief executive Alasdair Thompson said it was not possible to get short-term contracts.

"Yet within two to three months the climatic position may change for the good of electricity users and then many, forced to renew for two years, will be left with crippling contracts.

"At this point we already have a disaster for companies forced to renew their contracts at this time."

With Meridian, TrustPower and On Energy out of the market, industrial users wanting to renew contracts have a choice of Genesis, Contact and, with limitations, Mighty River Power's Mercury Energy.

"Quotes are hard to get and those that are there from Genesis and Mercury represent price rises in excess of 30 per cent," Mr Thompson said.

It all threatens to get worse. TrustPower yesterday stopped generating from three stations that provide 55 per cent of the West Coast's supply because of water shortages.

As a result, it faces additional exposure to the spot market. There is also the risk of blackouts as transmission lines that usually bring in only a proportion of West Coast demand have to meet 100 per cent.

TrustPower has also been forced to spill water from its Patea hydro station because of transmission problems to Wellington.