Winter's winner happy with power rules

By CHRIS DANIELS energy writer

Contact Energy, the nation's largest non-state power company, has told the Government that there is no need for major changes in the way the electricity market operates.

Contact, widely believed to have made huge profits during the winter, has told Energy Minister Pete Hodgson that the structure of the market is sound but more generation capacity is needed.

Mr Hodgson had asked for industry and public submissions on the causes of this year's winter power crisis and for suggestions on how future electricity price problems could be avoided.

He said the cabinet would look at the suggestions but he made no firm commitment to changing the way the market was organised.

Contact is the second-largest power generator in the country and has 380,000 retail customers.

As a largely thermal generator, Contact was able to take advantage of the low South Island hydro lake levels and the high wholesale power prices that these caused.

During the winter, thermal stations such as Contact's plant at Otahuhu were running at full capacity and the power from them was sold to rival retailers at high prices.

Contact corporate affairs manager David Hunt yesterday defended the "vertical integration" of the big power companies, which now have large retail customer bases that match their generation assets.

But he told a media briefing that the electricity market did need to be "refined" so there was more transparency in the contract market, where most power was traded.

He denied that thermal generators such as Contact had waited until late in the winter before increasing capacity.

Some analysts have criticised the role of thermal generators during the crisis, saying they waited until prices got extremely high before generating more power.

They suggested that this was done to drive out competitors, such as the NGC-owned On Energy, which had a lot of customers but little generation capacity.

On Energy managers had decided to buy power on the spot market, hoping that it would be cheaper than the prices offered under long-term contracts by its rivals.

But after losing $1.4 million a day for two straight months, the company left the retail power market, selling all its customers to its two state-owned rivals Meridian and Genesis.

Mr Hunt said the vertical integration of the big companies allowed them to "internalise" the risks of events like last winter.

This meant that Contact's customers were protected from the volatility of the wholesale price.

* On Monday - reforming the electricity market.

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