Minister says don't panic but was there a cunning Baldrick plan?

Friday 3rd August 2001

By Peter V O'Brien

Current difficulties in the electricity industry have had a minimal effect on share prices for listed power companies.

There was remarkable little change between prices in June when The National Business Review examined the sector, and those ruling on Monday, although United Networks dipped 25c that day on turnover of less than 5000 shares.

The industry has been under increasing pressure in the past six weeks, with most of the heat going on those retailers which lack sizeable generation capacity.

Natural Gas Corporation and its subsidiaries was an example of the rapid change, The company's activities were of particular interest to customers of NGC's subsidiary, On Energy.

People in the Wellington region were "sold" three times in less than five years. We were customers of Capital Power until late 1996, when the city council-controlled operation was sold to TransAlta. NGC acquired Transalta last year when the North American owners of the latter company had serious problems at home.

We have had bills from On Energy since March.

In Transalta days, the kilowatt hour usage rate was lowered last year and the daily charge raised.

On Energy raised the usage rate while lowering the daily charge.

The company advised it would lift the kilowatt hour rate from July 1.

It used full-page advertisements in June to say it committed itself to review wholesale electricity prices regularly and would reduce prices to customers as soon as wholesale prices returned to normal.

On Energy warned the new retail prices from July 1 could remain over the entire winter.

It would be a massive understatement to say consumer reaction to the signalled price rise was unfavourable. The company abandoned the proposal.

NGC then said it had sold its South Island retail customers to state-owned Meridian Energy and last week announced an agreement to "sell" 290,000 North Island commercial and residential electricity customers to another state-owned operation Genesis Energy.

So-called "contracts" between electricity suppliers are a joke.

They are one-sided and conceivably "onerous" in the legal sense, because the only way out is a switch to another supplier.

The overall expense can outweigh any savings, particularly when, in the Wellington region's case, newcomers have suspended signing up new customers.

Wellington's situation is an example of what has, and is, happening throughout the country.

Energy Minister's Peter Hodgson's best reaction was a call for a voluntary 10% reduction in electricity consumption and releasing more power into the national grid. It was no surprise that the sharemarket reacted favourably to listed retail electricity companies getting out when they lacked substantial generating capacity.

Investment is about companies' profitability. Nothing else matters, irrespective of the current economic and social fallout from a situation which is a "crisis."

Mr Hodgson's view is there are 10 weeks to go before the word should be used.

The situation took another twist last week. Tauranga-based retailer and relatively small generator TrustPower said it expected a small loss for the six months ended September 30 and was examining its retail operations.

TransPower's share price fell slightly after the forecast loss was announced but recovered when the market assessed the future.

New Zealand is close to an ironic situation where state-owned enterprises will control most of the generation capacity and have a large share of the retail customer base.

That was probably not envisaged when the industry was split unless there was an undisclosed Baldrick-type cunning plan.

As mentioned in June, investors' best bet in the energy sector could be involvement in companies that distribute energy (lines' groups), because they will get solid revenue, no matter what happens to wholesale and retail prices.

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