Mercury price plans under fire

By JAMES GARDINER and VERNON SMALL

The legality of Mercury Energy's plan for short-notice price rises is being challenged, despite endorsement from Energy Minister Pete Hodgson, who wants other electricity suppliers to follow suit.

The minister has also raised the prospect of one of the big North Island thermal power stations failing after three months of running at capacity.

With South Island hydro lakes at crisis point and little sign of sufficient rain, electricity may soon be rationed. Any thermal plant failure at Otara, Huntly or Stratford could mean sudden blackouts.

Mercury wants the right to raise power prices every two days over the two months from September 12 and to vary any other terms at 48 hours' notice.

It also wants the ability to ration power to hot-water cylinders for more than five hours a day. But the existing terms of supply to customers say it cannot do so without at least one month's notice.

If Mercury wants to change the terms significantly, it must first give customers a "reasonable opportunity" to comment, take those comments into account before making a final decision, then give another month's notice.

Consumers Institute chief executive David Russell and Keith Berman, of KPMG Legal, both said the existing contract had to be met.

Mr Berman said he did not believe the company could do what it proposed without first satisfying the existing terms and conditions. "The short answer is 'no'."

Mr Russell believed Mercury had the "best of intentions" but he said it had to follow the strict legal definition of the existing contract.

But Mercury spokesman John Foote said last night that it would take too long to deal with the crisis if the company had to give a month's notice - "By then you're looking at blackouts."

He and Doug Heffernan, the chief executive of Mercury's owner, Mighty River Power, said they had taken legal advice before advertising the change.

Mr Foote said the staff lawyer was relying on the definition of "reasonable opportunity" and the fact that Mercury would consider public comment and not necessarily implement the change on September 12 but later if possible.

"The legal basis is that we're really just acting under urgency, otherwise we'll have a complete disaster on our hands."

Yet it remained unclear from his comments and Dr Heffernan's whether the disaster they were talking about involved power cuts to consumers or a financial disaster to Mighty River Power.

The generator has more customers than it can supply and has to buy extra power at high prices on the wholesale spot market.

Control of hot-water heating was one of the key weapons to reduce peaks in power demand before the creation of an electricity market.

But competing retailers have no control over it and line companies, such as Auckland's Vector, must apply the same measures to all customers regardless of which retailer supplies them.

Dr Heffernan said price increases were not a "likely tool" to cope with dwindling power supplies - but hot-water heating was.

However, the public notice the company published at the weekend made no reference to water-heating control.

Mr Hodgson yesterday described Mercury's move as "a pretty useful contingency measure for other retailers to follow".

"In the unlikely event that we get into difficulty, it's everyone's view that it is better for us to have hot-water cylinder cuts before we have blackouts."

He said the only things that would now cause blackouts would be an end to public conservation measures or a significant failure at one of the thermal generation plants. It was entirely possible that one or more plants would fail, because that happened to generators when they were run hard.

Mercury's standard terms and conditions are posted on its website.

* The latest daily power saving was 8.4 per cent. The Government is urging savings of 10 per cent on normal daily use.

Mercury Energy


Feature: Electricity

Energy Efficiency and Conservation Authority