North Island power hikes under fire

By Phil Boeyen, ShareChat Business News Editor

Tuesday 12th March 2002

The power price squeeze is spreading north with North Island power users reporting they are being hit with huge price increases as they come off three year supply contracts.

There's already been considerable coverage about businesses in the Christchurch market who have been facing big power hikes and according to the Employers & Manufacturers Association (Northern), the same issues are now appearing across the Strait.

The association's chief executive, Alasdair Thompson, says some users are facing price rises of 50% or more, which are excessive compared to the long run cost of electricity and in the absence of any crisis.

"These reports mirror the experience of South Island users who were recently denied power contract renewals on reasonable terms.

"The electricity market is rationing electricity to commercial users by forcing them to cut demand to meet supply limitations. Insufficient electricity is being made available at sensible long run prices, and this is leaving business exposed to a repeat of last winter's costly electricity price spikes."

Mr Thompson says the current objective for generators and retailers is to earn the highest returns and minimise their exposure to spot market prices without sufficiently increasing their investment in power capacity.

"These exercises in building market power are being carried out at the expense of many of their customers. Users are also unable to plan how much power will cost them over the year ahead."

The association says it has put several proposals to government in conjunction with Business New Zealand which, if introduced in principle, would ensure unacceptable price spikes did not re-occur and that the market was strengthened.

These included requiring generators to commit a block of their production to supply hedge contracts and removing resource consent obstacles to developing small scale hydro, wind power and distributed generation projects.

"If all else fails government should separate generators and retailers."

Mr Thompson says remedial steps taken now would ensure the market is far more robust, without the need to go to full market regulation.

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