Power shortage looks unlikely, says Heffernan

Doug Heffernan

The country is still likely to escape electricity shortages this winter, says Mighty River Power chief executive Doug Heffernan.

He told Parliament's commerce select committee yesterday: "We are comfortable with the Electricity Commission's public depiction of the situation, that while the storage situation is quite tight and we are below mean - and that always means there are risks, that's the nature of a hydro-dominated system - it is not likely at this stage we will have a shortage."

His glass half-full view contrasts with what his peers at Genesis Power and Meridian Energy told the MPs two weeks ago.

But Heffernan, whose company includes the largest electricity retailer in Auckland, Mercury, said the generators agreed that transmission capacity into the city needed urgent upgrading.

Two weeks ago, Genesis chief executive Murray Jackson and Meridian chief executive Keith Turner expressed alarm at the low level of the hydro lakes in the South Island and called for Whirinaki, the back-up generator in Hawkes Bay built after the 2003 crisis, to be used so water could be conserved.

Although the lakes are well below normal for this time of year, they remain above the Electricity Commission's "minzone" line.

Heffernan defined the minzone in these terms: "If national storage gets as low as this then we will need to be running all thermal plants, including Whirinaki, flat out in order to ensure we don't run out of water."

Mighty River Power's hydro stations are on the Waikato River, fed from Lake Taupo, which is in good shape, unlike the Waitaki hydro lakes which are at similar levels to the crisis year of 1992.

On Transpower's controversial plans to build new 400KV transmission lines across Waikato into Auckland, Heffernan said: "All the generators say there needs to be more transmission capacity into the Auckland region. Period."

How it should be done was for Transpower and the Electricity Commission to determine.

But without a national grid performing properly, competition among generators and the development of renewable sources would be constrained.

Transpower chief executive Ralph Craven expressed his company's concern about a just-in-time approach to upgrading the national grid.

Echoing what Heffernan had told the MPs, Craven said: "The risk of investing too late is many times greater than any perceived cost in investing too early.

"It's an asymmetric risk. That means that while there is a low probability of something happening, if it does the consequences are huge."

The commission has delayed until next month its interim decision on whether to approve Transpower's plans for a new line to Auckland. A decision is not expected until July.

Craven also responded to the Commerce Commission's declared intention to impose price controls on Transpower, denying it had made excessive profits and disputing the appropriateness of the commission's backward-looking rules for regulating its profits.

In 1999, Craven said, transmission charges at 1.4c a kilowatt/hour made up 10 per cent of the average residential consumer's power bill. By last year, transmission charges had increased only to 1.5 per cent, representing 8 per cent of the bill.

"It is the wrong area to focus on if you are trying to drive prices down."

Craven denied the Commerce Commission's charge that it was trying to prefund yet-to-be-approved investments in the grid. Its approach to cost recovery spread the cost over the long life of the assets involved, he said, often measured in decades and only after the cost had been incurred.

Transpower, in its response to the Commerce Commission, said its approach to setting charges was expressly designed to ensure no excess profits accrued.

The price rises which caused it to breach the commission's thresholds resulted from investigating options for future major grid investment and other preparatory costs including building capacity within the organisation as well as higher regulatory and insurance costs.