Mills shut again by power bill

By WAYNE THOMPSON



Two big North Island pulp mills halted production yesterday for the second time in four days in response to soaring electricity prices.

Mill management pulled the plug on power-thirsty pulp driers as they faced a tenfold increase in their costs - although prices fell yesterday as disrupted supply was restored.

Prices soared on the spot electricity market because of disruption to key transmission lines from the South Island dams and higher demand with people returning from the holidays.

Thermal stations in the North Island compensated by producing more power than usual for this time.

The impact on wholesale electricity prices was a rise from $50 a megawatt-hour to $1000 MW/h yesterday and $800 MW/h on Friday morning when wind toppled three pylons at remote Molesworth Station in Marlborough.

Prices returned to normal at 5pm when Transpower said it had restored the high-voltage link after days of work to erect temporary towers.

The Winstone Pulp International (WPI) mill at Karioi, near Ohakune, stopped production yesterday, putting its 145 staff on maintenance work.

The Napier mill of Pan Pac Forest Products, employing 300 people, also lost production.

Both mills also closed for most of Friday.

WPI managing director David Anderson said yesterday's closure was forced by rates soaring to a "prohibitive new high of $1000 MW/h".

"We cannot absorb extraordinary price increases of this order."

At the Napier mill, pulp division general manager Doug Ducker said that to keep going in the face of yesterday's "crazy pricing signals" had the potential to boost mill costs tenfold.

He said the electricity pricing mechanism was open to extreme price-gouging and was inappropriate for the reality of the export pulp industry.

He hoped this would be dealt with by the new Electricity Commission when it took over market governance on March 1.

Commission chairman Roy Hemmingway said the broken power link was an extraordinary event which could have resulted in "involuntary blackouts".

Instead, the market sent signals through pricing that electricity was short and major users responded by cutting consumption and North Island generators brought in more plant.

"The market system has worked."

However, Mr Hemmingway said the commission must look at whether priceS as high as quoted yesterday and Friday were necessary to balance the supply and demand.

He said an appropriate price cap would be looked at along with creating a robust and liquid hedge market - a form of insurance to manufacturers who were exposed to spot contracts.

Major Electricity Users Group chairman Terrence Currie said energy-intensive industries had lost confidence in the ability of the electricity sector to provide secure supplies at competitive prices.

He said it was either a case of the industry taking advantage of an extreme event or the market was fundamentally flawed.

Improved competition and a thorough review of the wholesale market were urgently needed.

Spot wholesale prices do not affect domestic consumers.

CUTTING BACK


* The Winstone Pulp International mill at Karioi, near Ohakune, stopped production on Friday and again yesterday, putting its 145 staff on to maintenance work.

* The Napier mill of Pan Pac Forest Products, employing 300 people, also lost production yesterday. It shut down on Friday.