Blackout fear as hydro lakes keep draining

By VERNON SMALL and SCOTT MacLEOD

New Zealand is in danger of power blackouts in September or October if hydro lake levels continue to fall.

A top-level briefing to Government ministers obtained by the Herald describes the risk as moderate, but sources said it was likely to become severe within a few weeks.

As the Government grappled with the power problem yesterday:

* Some firms cut production.

* International credit agency Standard & Poor's compared the New Zealand power industry with that in California, which has suffered from rolling blackouts.

The briefing notes for ministers said particularly low lake levels or a major plant failure before snow thawed in spring could trigger cuts.

The wording is more ominous than Energy Minister Pete Hodgson's June warning of a "modest chance of supply difficulties".

Ministers are due to meet industry and consumer representatives today to discuss the looming crisis as wholesale power prices spike and business leaders call for urgent conservation measures.

Options include a public conservation campaign and efforts to persuade power retailers, including Government-owned generators, to "buy back" power in a move similar to Mercury Energy's recent campaign.

Mercury said yesterday that it was on target to save customers $1.3 million, or an average of $13 each, on their July and August power bills. Customers get credits if their bills are lower than in June.

The Government is also looking at cranking up diesel generation and removing transmission constraints to allow more power to flow from Taranaki generators.

High prices are already hurting businesses, but officials have not yet estimated the economic impact.

Prime Minister Helen Clark said yesterday that in 1992 "the crisis, which was significantly worse than the point we are at . . . clipped 0.6 per cent off GDP".

Treasury had yet to assess the effects "because no one is quite sure if this is going to be a '92".

"So we have to assume at the moment it is not heading for that, but depending on rain."

In 1992, daily storage fell to 500 gigawatt hours against about 1400 now.

But that low came earlier, and by this time storage had recovered to 1000 gigawatt hours. The average for this time of the year is about 2500.

A climate scientist with the National Institute of Water and Atmospheric Research (Niwa), David Wratt, said the forecast was for average rain in the South Island hydro lake catchment over the next three months.

But that might come as snow, which took time to melt.

Lake Taupo was expected to have average to below-average rainfall.

The most significant impact on business production is at the Comalco aluminium plant, where production has been trimmed by 5 per cent.

Executive director Kerry McDonald said that if the production drop continued for a year $50 million would be lost.

"Anyone buying electricity at the wholesale level will feel a serious impact," he said. "That has to be a worry for the whole economy."

The Glenbrook steel mill near Waiuku, south of Auckland, has also been forced to cut production.

Its general manager of engineering and environment, John Nuttall, said the mill had cut production from 12,000 tonnes a day to 11,300.

A generator was now producing 70 per cent of the mill's power needs, up from 50 per cent.

The mill was unable to pass on the costs because 60 to 65 per cent of its output was exported, and overseas buyers would reject expensive iron.

Helen Clark said the long-term solution was unlikely to be more big hydro-electric projects.

"We don't really have much more capacity for more hydro supply. The old easy days before the Resource Management Act are gone."

Meridian's plans for a tunnel at Lake Manapouri would boost supply from next year, but a mix of extra supply and energy efficiency needed to be assessed.

The Government is understood to be looking to extra thermal power generation at either Huntly, Otahuhu B or Stratford.

Parliament yesterday debated the Electricity Industry Bill, which would give the Government power to intervene if it was unhappy with industry self-regulation. The bill does not directly address the present crisis, but commerce select committee chairman David Cunliffe said it would affect prices long-term.

Meanwhile, Standard & Poor's said NZ's issues were similar but less extreme than those in California. Standard & Poor's said that when supply was short, the spot prices should rise. But in both NZ and California the increases were not passed on to all customers.

Retailer On Energy this week sold its 290,000 North Island customers to state power company Genesis Power, after selling 116,000 South Island customers to Meridian two weeks ago. Todd Energy and Trustpower are also reviewing their future in the retail market.

Standard & Poor's executive Laurie Conheady said this would reduce competition and he was concerned at the credit quality of all market participants.

The Major Electricity Users Group said yesterday that "insanely high" electricity prices and low lake levels undermined the credibility of the market and raised questions about the safety of investing in New Zealand.

Chairman Terrence Currie said the Government should take urgent action to lower demand.