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More risk than reward for consumers in Brownlee electricity reforms, says TrustPower

Wednesday 9th December 2009

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Listed electricity generator and retailer TrustPower Ltd is the only major player in the sector willing to express a detailed view on today's announcement by Energy Minister Gerry Brownlee of sweeping electricity market reforms, saying government interventions have consistently failed to produce a more competitive market.

"There's more risk in it for the consumer than reward, we'd have thought," said TrustPower spokesman Graeme Purches. "There are bits of it that we think are quite good and support, and there are other bits that aren't."

Other industry players were more circumspect, with neither NZX-listed Contact Energy nor state-owned MightyRiverPower willing to comment before studying the decisions.

However, the two state-owned generators most affected by the moves, Meridian and Genesis Energy, had clearly different stances, reflecting the fact the Meridian loses its Tekapo A and B hydro power stations to Genesis and picks up the diesel-fired reserve energy plant currently in place at Whirinaki.

Genesis welcomed the decisions and said it "supports all measures designed to improve competition in the electricity marketplace", while Meridian's CEO Tim Lusk noted that “at the end of the day the Government is our owner and it is our role to work with the decisions it makes". "That is what we will do. As it always does, Meridian will look for the opportunities which may arise from the new arrangements."

NZX-listed TrustPower was concerned that the physical asset swaps announced today were unnecessary, said Purches. This could have been achieved by a larger requirement for the SOEs to write larger long term "virtual asset swap" contracts than are already envisaged under the Brownlee package of reforms.

Meridian is required to sell 1000 Gigawatt hours of electricity a year of "South Island energy" to MRP and buy back from it 1000 GWh of "North Island energy", and to arrange the same back-to-back swap with Genesis, but for a total of 450GWh a year.

"What the reforms seem to be doing is setting the SOE's up to succeed in enabling them to compete in both islands," said Purches. "Whether that's good for consumers, only time will tell."

TrustPower enjoys the highest average retail margins in the electricity sector, along with strong customer loyalty, including high value pockets of customers throughout the South Island, where increased competition is already occurring following MRP's aggressive entry into South Island residential retailing last year. By giving the Tekapo stations to Genesis, the government now expects Genesis to launch into the South Island residential market.

Purches suggested also that Meridian was likely to move the Whirinaki station to Christchurch, where the company had first lobbied to have it installed when Labour Energy Minister Pete Hodgson required its construction after the 2003 winter power scare.

The uncertainty created by the industry shake-up was likely to have a chilling effect on private electricity generators' willingness to invest in new electricity plant, raising the prospect of shortages again within a decade, said Purches.

In select committee hearings earlier today, Finance Minister Bill English confirmed that all SOEs are now being required to make commercial decisions rather than engage in the "relationship management model" - a direct reference to Meridian's closeness to the previous Labour administration.

Businesswire.co.nz

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