No power price rises for five months - Brownlee

Thursday 21st May 2009

New Zealanders face a winter without power price rises by government decree.

Energy Minister Gerry Brownlee announced yesterday that he expected all power companies - both state and privately owned - to hold their prices until an initial review of the electricity market had been completed, in September.

The edict accompanied the long-delayed release of the so-called "Wolak" report into the existence and use of market power in the wholesale electricity market.

"The generator-retailers are in a difficult position as of today," said Brownlee. "It would be an audacious act for any power company to raise its prices."

Authored over almost five years by Californian energy market guru Professor Frank Wolak, the report concludes that the four main power companies - Meridian, Contact, MightyRiverPower and Genesis - were able to use market power, especially during years when hydro storage was low - to charge as much as $4.3 billion more for electricity than is justified by Wolak's own model of the New Zealand power system.

All four generator-retailers, the Ministry for Economic Development and the Commerce Commission all believe there are flaws in Wolak's modelling, but Brownlee urged power companies not to contest the findings, since no illegality had been found.

"There's really no surprises here," said Brownlee. "We've known there's something wrong with the way electricity prices have been set."

He signalled that there was a particular focus on market dynamics in dry years, and that the Ministerial Working Group on the electricity market would deal with "low hanging fruit" by September, anf predicted there would be a "scrap" over electricity market reforms.

Asked whether the Government accepted that new sources of electricity were more costly than in the past, Brownlee said it would be "mistaken to get too hooked up on one little aspect of a business plan".

Choosing the loss-making global airline industry for his analogy, Brownlee said: "The new Boeing engine is more exopemnsive than any in the past, but the seats on the plane aren't."

He rejected the suggestion that state-owned power companies would be unable to behave comnmercially, saying they were already performing poorly despite power prices rising 72% in the last nine years.

Businesswire.co.nz

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