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Commissioner Incensed At Govt Deal To “Share Risk” With Genesis In Huntly Plant          Chris Mole - Associate Editor

There are signs of a rift developing between Electricity Commissioner Roy Hemmingway and the Govt after a confidential deal, which will see taxpayers partially underwrite Genesis Energy’s $520m “E3P” combined-cycle gas turbine power station at Huntly.
Hemmingway told NZ Energy & Environment Business Week he’s concerned at the implications for the electricity market if the Govt appears to favour a state-owned company.

He fears it will discourage new private investment in the electricity sector. “Any time the Govt intervenes in the market it creates a situation where it’s more difficult to assure private investors the market will operate neutrally.” Hemmingway adds: “I’ve expressed my displeasure to (Pete Hodgson)”.

He believes it may be justified for the Govt to help build a new power station but it should be done “in an open and contestable way” so other players can compete for assistance.

Asked whether the Govt’s action may make him reconsider his job as regulator of the electricity market, Hemmingway says the situation hasn’t got to that stage yet - but adds wryly: “If this sort of thing keeps going on there won’t be an electricity market, so there won’t be a need for a regulator.”

Energy Minister Pete Hodgson says Genesis approached the Govt for a “risk sharing” arrangement to make the Huntly plant viable. He stresses this is because the company doesn’t have sufficient certainty about future gas supplies, due to the transition from Maui gas, with new fields not yet fully developed.

Under the 10-year deal the Govt will compensate Genesis if it can’t secure the gas it needs. The agreement provides for a mid-term review to evaluate the gas status and reduce the Govt’s exposure. Hodgson says further details of the arrangement are commercially sensitive because release of specific monetary values or gas quantities could impact on the market for gas.

He stresses: “The agreement with Genesis represents a one-off, and is a response to the uncertainty created by the transition in the gas market.  Similar support should not be needed, or expected, in future.” He draws a parallel with the Govt’s “targeted intervention” in contracting with Contact Energy for the Whirinaki reserve energy plant last year.

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