Editorial: Power penalty at last should curb 'crises'

Energy Minister Gerry Brownlee. Photo / Mark Mitchell

Opinion

A good idea can take a long time to work its way through the mill of government. The idea that electricity suppliers should face a financial penalty for asking residential customers to save power in a hydro shortage is a good one.

Contrary to the popular perception, a hydro shortage is not a power shortage. If it is a "crisis" it is one of cost, not supply.

The country's thermal stations can maintain the supply but at a higher cost, which appears on the wholesale spot market where retail suppliers and large industrial consumers buy a portion of their power.

They have the resources to take advantage of price fluctuations. Households and small business do not. They are supplied from hedged contracts at fixed prices that will have already taken weather risks into account.

Yet whenever low lake levels have sent the spot price soaring in recent years, residential customers have been urged to cut consumption. That has been a saving to the companies and a benefit to wholesale buyers because it takes pressure off the spot price.

But it is not fair to small consumers, often elderly people, who cut back on heating and other home comforts because they are led to believe the country is at risk of power cuts.

A ministerial inquiry into the last such "crisis", in 2008, reported that, "Although there have been no 'blackouts' or 'brownouts' since the early 1970s, there is a public perception that our electricity system is fragile and vulnerable to frequent crises."

It noted that ordinary residential customers were not significantly exposed to the spot market but that their suppliers were able to "talk up the risk of a hydro shortage in dry years and persuade the media, the Government, the Electricity Commission and market participants of the need for a public conservation campaign."

The inquiry team proposed a tidy solution: the benefit that supply companies gain by avoiding paying the high spot price should be passed to their residential and small business consumers in the form of a weekly payment for the duration of the conservation campaign.

Its report went to Energy Minister Gerry Brownlee in August, 2009. He thought the suggestion a good idea. It was incorporated in legislation passed last year that replaced the Electricity Commission with an Electricity Authority.

Last week the authority announced that power companies that call for a conservation campaign when hydro lakes fall will be liable for payments of $10.50 a week to every household and small business they supply, regardless of whether the customer saves any power.

It has taken 18 months but better late than never.

It is a good idea because it may deter power companies from running unnecessary conservation campaigns that promote powerful misconceptions about the adequacy of the country's electricity supply and its need for costly extra generating capacity.

And if does not deter them, it is only fair that small consumers should be compensated for the inconvenience and discomfort they are being asked to bear for the benefit of those exposed to the spot market.

But it is more likely consumers will never see the money, because power companies will find it too costly to cry wolf. If the Electricity Authority has done its sums correctly, it will not be in the interests of suppliers to start a conservation campaign unless circumstances somehow produce a 10 per cent probability that the country's needs will exceed its capacity to generate power from any source.

We have been put into panic when the probability has been as low as 1 per cent, according to the authority's chief executive, Carl Hansen. May the payment he has set spare us future calls for needless sacrifice.