Power firms resort to 'tricks'

By RICHARD BRADDELL

WELLINGTON - Electricity retailers have stifled competition and kept profit margins high by indulging in "all the tricks in the book" to hang on to customers, Meridian Energy says.

The country's largest electricity generator, Meridian has struggled in spite of aggressive tactics to build up its retail customer base to 100,000.

At the electricity inquiry in Wellington yesterday, it accused other retailers of resorting to procedural tricks to keep customers from readily switching supplier.

Meridian's chief executive, Dr Keith Turner, told the inquiry that margins in the retail market were quite good at present.

However, they would not continue to exist if the market was really competitive.

An inquiry team member, Stephen Kelly, summarised the submission by saying that retailers did very well out of their customers.

"There is a clear incentive for retailers therefore to hang on to their customers, therefore it is not surprising that they make a monkey out of switching arrangements."

Dr Turner said that, in spite of his concerns about the state of the electricity market generally, it was a reflection of its immaturity and problems would be solved over time.

Mr Kelly in turn questioned whether customers should be forced to wait while the market grew up.

Meridian is at present heading to court with Transpower after refusing to pay what it regards as unfair charges for use of the Cook Strait cable.

But while the court action would resolve the terms and conditions of Meridian's contract with Transpower, Dr Turner said that it would not deal with central issue of the dispute - which was one of economic allocation of Transpower's costs.

At the end of lengthy, expensive and unavoidable litigation, he said it was likely disagreement on price would remain.

He suggested that was the outcome in another such case, in an apparent reference to the protracted and inconclusive litigation on interconnection between Telecom and Clear Communications.

Dr Turner's concerns about Transpower were reinforced by TransAlta, which said it was paying 80 per cent more for use of the Cook Strait cable than another generator.

This was despite the fact that production from its Cobb Power station went no further than Christchurch.

The position was no better for Christchurch consumers who were paying Transpower in total $6 million more for transmission than they should because of long-term contracts signed two years ago based on price formulae that have since changed.

TransAlta executive Albert de Geest said: "We do not think there is any place for a monopoly like Transpower to issue long-term contracts when their pricing methodology is as unstable as it appears to be."

TransAlta recommended that Transpower be broken into two businesses; one established to look after the assets, the other its operations and maintenance of security of supply.

TransAlta and Meridian had the same stance on Transpower, but they parted company on the effectiveness of the wholesale market and the position of the state-owned generators (which includes Meridian) within that.

On Wednesday, Comalco chief executive Kerry McDonald launched an attack on the wholesale market, saying it was designed by generators without input from users.

In an equally scathing review, Mr de Geest gave an example where state-owned hydro generators could boost returns from the spot market by a potential 21 per cent by withholding capacity for a short period.

The water buildup could potentially be spilled under the cover of flood.

"Spot prices have been falling, but our view is that they are still well above short run marginal costs, which seems odd in a market that is oversupplied," Mr de Geest said.

The issues needed to be dealt with within the New Zealand Electricity Market.

However, while it had rules before it that would lead to transparency of bidding and supply, they would not pass because they would be opposed by generators.