22 May 2009

Electricity system flawed - Govt

9:04 am on 22 May 2009

The Government says the structure of the electricity system is flawed and cannot continue in its present form.

A four-year inquiry by the Commerce Comission has concluded that wholesale power prices were likely to have been 18% higher than needed, because of a lack of competition.

Overcharging between 2001 - 2007 amounted to $4.3 billion.

However, there was no breach of Section 36 of the Commerce Act by Contact, Genesis, Meridian Energy and Mighty River Power.

Energy Minister Gerry Brownlee wants a technical advisory group to advise on electricity market reform by September.

He told Morning Report that refunds are unlikely, but he has recommended electricity companies refrain from raising further while the Government is reviewing the sector.

Commerce Commission chair Mark Berry says the market dominance of the power companies was magnified during dry year when hydro lake levels were low, such as in 2001 and 2003.

Dividend cuts

Analysts say a shake-up of the electricity sector could put annual dividends of $1 billion to the Government at risk.

They say reforms being considered could increase competition in the electricity market and lower prices to consumers.

But they say this could undermine the profitability of companies and cut payments to the Government at a time when its books are not looking so healthy.