Heat goes on power regulator as prices spike

The Electricity Authority (EA), under severe criticism over soaring wholesale power prices, says it is not "not comfortable" with power companies' explanations.

Associate Energy Minister Shane Jones slammed the authority on Thursday as being useless in regulating the generator-retailers (gentailers), which are accused of profiteering.

"Under the EA, sadly, that organisation has proven to be a chocolate teapot in regulating the excessive behaviour of the gentailers, who I feel are probably the most powerful economic institutions in New Zealand beyond the supermarkets and the Aussie banks."

Energy Minister Simeon Brown also called for the Electricity Authority to publicly report power data to ensure there was no price-gouging in the sector.

Wholesale power prices have doubled in the past three weeks, in part because New Zealand's hydro lake levels are at about 47 percent of what they would normally be at this time of year.

EA chief executive Sarah Gillies told Morning Report on Friday there was "no silver bullet" for what was ultimately a supply issue.

"The EA is not comfortable with the current high wholesale prices and we are already using our powers to drill into why prices are so volatile and so high. We're not comfortable with just accepting industry explanations."

Gillies said the EA was using "our regulatory powers to essentially put more sunlight on the system. So, we're demanding quite specific information about pricing and behaviour in the market.

"We already monitor market behaviour, but we are stepping it up in this space. We've also held, or the authority board has held, several emergency meetings this week to make sure that all options are on the table.

"We're also doing a number of other things. So, for example, working with the system operator to look at releasing contingent storage, which would enable essentially the lake levels to be lower and more hydro to be available for generation."

She said a team was analysing trading data to work out what the next steps might be, and will be publishing it weekly.

"Partly it's about highlighting what's going on, digging into that, but also using it to inform any other steps that we might need to take."

"There's all sorts of things we can do as a regulator. We've got a range of tools. I can't talk to all of that because it's under active consideration with the board, but essentially we're not comfortable with the state of the situation right now.

"I think it's important to recognise that, as I said, we're dealing with a fuel shortage issue and there isn't a silver bullet in the long-term. In the long-term we know that investment is really important for New Zealand. We have to build more generation to be able to support the system in the future, but that's a big part of it. And we have a big focus on the settings that support that investment.

"But in the short-term, you know... looking at what's going on day to day to make sure that everything's above board."

There was presently no evidence gentailers were deliberately keeping supply low to boost prices, Gillies said.

"And frankly, with the spot market prices what they are, we'd expect people to be generating everything that they can.

"But that's why we look into exactly what's happening. And as I said, the longer-term picture here is about investment, and that's really another thing for us to be focused on and making sure that investment is coming to market.

"It is a transition and transitions are challenging, and our role is to make sure that the industry's pace matches the pace of that transition for the benefit of New Zealand consumers."

In the meantime, businesses are threatening to close if costs are not brought down to more reasonable levels.

Households have been somewhat insulated from the recent hikes, with retailers having purchased electricity on the market when prices were lower. But that situation will not last forever, retailers have warned, with one already deciding to put a halt on taking on new customers.

Brown said there was no excuse for power companies not to be investing in new energy production. He told Morning Report on Friday it was a very tight market, but the Government had removed all barriers that may have deterred investment in power generation.

He said the Government told the gentailers it expected companies to build further production facilities, but independent generators need to invest too.

"There's absolutely no excuse. I've made that point incredibly clear to the gentailors. There is no excuse. We expect as a government, we expect these people to be investing.

"But we also need independent generators to be able to actually invest in more generation here in New Zealand."

He wanted assurances profiteering was not happening.

Mercury responds

Chief executive of gentailer Mercury, Vince Hawksworth, said the company was not profiteering from the situation.

"If you look at our large assets, then the profits that we make are in line with other businesses that are listed on the NZX. Our yields are not not substantially different to what people get from putting their money in the bank."

A previous analysis by the Council of Trade Unions suggested companies were making very little investment in new generation, compared to dividends paid out to shareholders.

Hawksworth said the lack of investment was partially down to uncertainty around the country's biggest user of electricity, the Tiwai aluminium smelter, which earlier this year was confirmed to be staying open for at least another couple of decades, and the difficulty in getting new projects started.

"It takes many, many years to go through the consenting process to get these projects up and running. What the government is now doing with the fast-track consent - of which we have got several projects in there as well - will help."

He said Mercury was moving "as fast as we can" to get new energy sources built, including "New Zealand's largest wind farm" and geothermal projects too.

Hawksworth played down the chances of high spot prices flowing onto higher household bills, noting only 2 percent of Mercury's sales volume was exposed to spot price fluctuation.

"Put another way, over 98 percent of our sales volume is at fixed prices that do not see this spot price at all. They're fixed long-term prices."

Other gentailers Meridian, Contact and Genesis all refused Morning Report's requests for interviews.