18 May 2011

Fletcher backs move to cut power price spike

7:39 am on 18 May 2011

Fletcher Building is backing a move by the electricity regulator to rein in skyrocketing prices which could have cost the firm $900,000 in late March.

Prices soared after transmission into Auckland from the south was impaired by long-scheduled maintenance on lines run by Transpower, the national grid operator.

During the outage, some Genesis Energy prices reached $20,000 per megawatt hour, four times crisis levels and 200 times average prices nationwide.

The Electricity Authority is reviewing submissions on its decision to reset those prices to up to $3000 a megawatt hour.

In a draft decision, the Authority found the high prices threatened the integrity of the electricity market.

Many businesses facing spot prices were shocked by the substantial cost they suddenly found themselves faced with.

Fletcher Building infrastructure chief executive Mark Binns says it fully supports the Authority's move.

As a major user of electricity at its Golden Bay cement works, the outage cost the company $900,000. Mr Binns says the firm cannot operate in an enviroment in which companies are subjected to that level of volatility.

Other firms are disgruntled that they now face being penalised for taking steps in response to the high prices.

Norske Skog energy manager Graeme Everett says the paper producer shut down one of its pulp lines in Kawerau when it saw the price spike forecast.

Given the authority's decision to lower prices, the firm would have made a different decision, he says, meaning the company has lost out.

" We do monitor the spot market quite closely and make decisions on production quite often, and we need to know that the price is the price.

"Its not clear to us that this decision is all that helpful in that regard."

Meanwhile, Genesis Energy, which has been blamed for the price spike, reiterated there was no so-called undesirable trading situation, and other participants, including Mighty River Power and Meridian should have been better prepared.

The energy company warns that price intervention by the Authority means it's not commercially viable to run the last unit at Huntly in similar situations.

Contact Energy and Todd Energy agree with Genesis that market prices should be allowed to work, and they worry that intervention sends the wrong signal.