Transpower threatens to pull the plug

By Rob Hosking

Friday 2nd July 2004

State-owned monopoly transmission provider Transpower has threatened to quit its role as operator of the national grid unless MPs give it a wide-ranging indemnity against being sued.

Transpower, whose main role is owner and system operator of the national grid, told MPs in behind-closed-doors meetings last month that it could not get insurance against legal action for negligence if the national grid failed.

At the time, Transpower was facing a chorus of criticism for expected failures in the national grid in the South Island.

The Electricity and Gas Industries Bill, which was reported back from the commerce select committee this week, gives Transpower some indemnity against legal action other electricity firms cannot sue the company if that action arises out of work carried out in Transpower's role as a service provider.

However, Transpower wanted anyone including businesses or individuals affected by transmission failures to face a statutory bar to any legal action.

"The nature of the system operator's role ... means that the system operator's actions or omissions can result in significant financial implications for industry participants and consumers generally ... There is a risk that a limited number of ... decisions will be found to have been negligent."

The issue is one of the reasons the bill is late reporting back. Transpower executives raised the issue late in the hearings process and had behind-closed-doors meetings with MPs on the issue.

The select committee has recommended a much more limited indemnity than Transpower wants.

Transpower told MPs it has been unable to buy reasonable insurance against being sued, and if Parliament did not provide the indemnity it wanted, "Transpower would need to consider carefully whether it could continue to act as system operator."

The potential liability "in the event of a cascade failure could be very high," Transpower told MPs in a late submission on the bill.

However, if Transpower was to withdraw from its role as system operator, "the consequences for the industry would be significant ... Even if another party with sufficient experience can be identified to perform the system operator role, that party is likely to have the same concerns and issues."

Yesterday Transpower was not saying whether it would make good its threat.

"Seriously, we don't have any comment on that at this stage," public affairs manager Wayne Eagleson said. "We need to talk more amongst ourselves and with officials."

Transpower's stance has come under fire from the opposition.

"They're a large government-owned entity that is meant to operate in a commercial manner," National energy spokesman Roger Sowry told the National Business Review. "Is the issue that they can't get insurance or that they can't get insurance at a price they are prepared to pay?

"They seem to be fairly risk-averse, but when there's an outage and the spot price rises, companies around the country bear the risk and the cost. With a balance sheet like they have got there are some risks Transpower should be reasonably prepared to carry."

National has criticised the bill overall as still giving too much power to Transpower.

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