Crisis 'shows electricity market needs reform'

By Rob Hosking

Friday 21st September 2001

An electricity market dominated by state-owned generation companies was a contributing factor to this year's electricity crisis, utilities investment firm Infratil says.

"At the moment we have all the costs of running the market but the market structure needs further reform if we are to get the benefits," Infratil spokesman Bruce Harker said.

The company applauded the government's refusal to introduce price caps during the recent power crisis - "that would have dampened the signal for retailers to negotiate with customers, or to introduce tariffs to incentivise consumers to save power" - and said the monthly price signals had done the job.

"The real question is: do generators really want to see this form of price signalling develop? With the vertical integration into retail, generation interests are clearly totally dominant. We suspect generators would rather encourage consumption and build power stations than have consumers respond." It would take standalone retailers, not beholden to generation interests, for New Zealand electricity consumers to get a more varied market, he said.

In a market structured like New Zealand's, generators would supply their contract obligations and price up any surplus to improve what can be earned on the spot market, while encouraging customers to pay more for contracts."

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