NZ report urges more competition in power sector

WELLINGTON, Aug 12 - New Zealand's power sector needs greater competition to help bring down prices, a government report said on Wednesday, while consumers should be compensated for saving power.

A review of the electricity sector, ordered by the government in April, said consumers had been paying too much for power, that the management of resources in years of low rainfall needed to be improved, and the transmission system needed investment.

Energy minister Gerry Brownlee said policy decisions would be made after public submissions.

"The government does find many of the recommendations appealing, including a system of offering compensation to consumers when asked to save power during a conservation campaign," he said in a statement.

Around 60 percent of New Zealand's power comes from hydro-stations, with more than 30 percent from gas or coal-fired power stations, and the rest from wind and geothermal sources.

New Zealand has had at least three "dry" years in the past decade when low rainfall has caused hydro lake levels to fall, sending power prices skyrocketing as generators relied on more expensive thermal power.

The review recommended that electricity distribution companies, such as Vector Ltd , be allowed to sell power to help boost competition, although controls would be needed to prevent the potential abuse of monopoly power.

Power generation is dominated by three government owned companies, Genesis; Mighty River Power; and Meridian, while listed companies Contact Energy Ltd and TrustPower Ltd provide around 38 percent.

Shares in Contact fell 2.2 percent to NZ$6.20 and TrustPower fell 0.7 percent to NZ$7.55 after the report, in a flat broader market.

The report also called for price controls in dry years to limit the scope for companies to manipulate the market.

Changes to New Zealand's power sector in the mid-1990s separated the generation and selling of power from the distribution process to establish the current system.

In May, the competition watchdog said power companies had reaped excessive gains of NZ$4.3 billion ($2.9 billion) from consumers over a six-year period to mid-2007 by exploiting their size and market structure, especially in dry years when hydro lake levels were low [ID:nWEL451776].