4 May 2010

Power prices should come down soon, says Brownlee

9:20 pm on 4 May 2010

The Minister of Energy and Resources says he doesn't believe that higher than average wholesale electricity prices will continue for long.

A study of wholesale power prices between January and March has found that the generating companies are acting more conservatively while the Electricity Industry Bill is before Parliament.

The report shows Meridian Energy held water back from its hydro lakes to guard against the risk of the changes, driving up the cost of power to all buyers. Electricity prices spiked in March despite water levels in South Island hydro storage lakes remaining average.

The minister, Gerry Brownlee, says that the weather has been more of a factor than the reforms, and that generators like Meridian are acting sensibly given the low level of Lake Taupo and small flows into South Island hydro lakes.

Mr Brownlee says he's still confident that in the longer term spot prices will be lower than they would have been without the reforms.

Competitor says Meridian did right thing

One of Meridian's competitors is praising it for holding back water: TrustPower's community relations manager, Graeme Purches, says Meridian doesn't always do the right thing but it has this time.

Mr Purches says that in the dry winter of 2008 Meridian didn't hold back water and was criticised for not sending a clear signal to the energy market that more generation was needed.

The Domestic Energy Users' Group says the reforms - aimed at lowering power prices - have led to extra company profits of around $300 million for several companies, including Meridian and TrustPower.

Group spokesperson Molly Melhuish says the reforms will cost each household about $90 a year.

Meridian Energy won't comment on what it says are strategic issues.

Study findings

The Major Electricity Users Group (MEUG) asked consulting firm Energy Link to investigate and the findings are that Meridian Energy pitched prices higher than normal to preserve water in its lakes.

Government reforms, including complex arrangements known as mandatory hedge contracts, would expose Meridian to 1500 gigawatt hours a year of extra demand and Energy Link says the company acted conservatively to manage this risk.

Meridian blames the weather - not politics - but its own interim report in December last year admitted that reforms would heighten risks.

The MEUG says generating companies should be monitored more robustly by the Electricity Authority which is to replace the Electricity Commission by October this year.

Spokesperson Ralph Matthes says the group wants the authority to keep a closer watch on price spikes and it should take a similar approach to the Stock Exchange, which investigates when share prices change quickly.