Edison backs electricity market structure here

By Rob Hosking

Friday 26th October 2001

Contact Energy bidder Edison Mission Energy yesterday joined the chorus of support for the current electricity market structure.

Managing director Bob Driscoll compares the New Zealand approach favourably to the US, particularly in light of the recent power shortages that hit both this country and California at around the same time.

"You had a number of advantages, and one of them was that the market mechanism was working - the shortage was reflected in price movements, and people adjusted their behaviour accordingly."

The other factor in New Zealand's favour was that exhortation to residential consumers to save power worked - an approach that did not work in California, and one that Mr Driscoll puts down simply to cultural differences.

The company is highly complimentary of the New Zealand electricity regime, and the government's continuance of the "light-handed" regulatory approach.

The government is reviewing the sector's structure and regulation following claims the winter water shortage allowed generators to profit excessively at retailers' and consumers' expense.

Edison's bid for the remaining 49% of Contact Energy will move a step closer next week with a further appraisal of the bid by independent appraiser Grant Samuel.

The report goes to the company by the middle of the week. Edison's offer of $3.85 a share has been widely criticised but Mr Driscoll said the offer was a "fair and full" one.

The report - and the reaction of the independent directors - will be crucial in the next stage of the takeover but until then Mr Driscoll was not commenting further on the issue.

However, he indicated Contact was likely to take "a serious look" at building additional electricity generation.

"I don't think additional generation needs to be built because of this year's electricity crisis - additional generation needs to be built because of increased demand," he said.

The timing of adding capacity was a tricky issue to manage, he said. "There are issues of what fuel you use, what size station, and a whole range of technical questions following from that. It is an art not a science - bring it in too early and depress prices, bring it in too late and suffer energy shortages."

And there were now competitive issues to be dealt with as well, in the deregulated market. "ECNZ isn't out there now saying 'we're going to build this generator here.' There are three other competing generators out there who I'm sure are looking at the same things we are. We have to weigh up those competitive pressures, but, yes, Contact will probably take a serious look at additional generation."

The most likely sites for further capacity were at or near the firm's existing plants at Otahuhu or New Plymouth, but this should not be taken for granted. "They would be the logical sites - transmission lines and other infrastructure are already there to take advantage of. Whether those ultimately are the places that make sense I can't predict - or even when."

Edison Mission - which owns energy firms in Australia, Indonesia and Thailand, and the US - has a global reach and perspective on energy issues.

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