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The Government yesterday announced its decision "in principle" to split state-owned electricity generator ECNZ in three.
As a result of the reforms announced, some analysts say energy prices could drop up to 20% over the next few years.
However, the high line charges which hit householders in particular are not likely to drop.
Large electricity users are expected to benefit, with the losers likely to be householders, small businesses and rural users.
ECNZ will be split into three state-owned generating companies from next April 1. They will consist of:The Lake Manapouri and Waitaki River-Southern Alps area hydro-electricity stations in the South Island;All Waikato River hydro-electricity station in the North Island;Huntly thermal station and Te Awamutu and Tongariro area hydro-electricity stations in the North Island.
The other state-owned generation company, Contact Energy, will continue to run its schemes, including the Clyde and Roxburgh hydro-electricity stations.
As part of electricity sector reforms, the Government also moved on the electricity companies which sell power to consumers, deciding to separate their line and energy businesses.
Deputy Prime Minister Winston Peters said prices for householders and businesses would be "dramatically reduced".
The Crown would continue to own the generating companies.
Each would need to compete strongly but would not have the incentive to maintain "higher than fair" prices, he said.
The decision was made "in principle" because Maori people have to be consulted and the companies certified as commercially viable.
ECNZ chairman Selwyn Cushing and chief executive Dave Frow said ECNZ had been concerned the split would result in lost value and lost security of supply. The board was also concerned about the detrimental environmental impact.
"As a board we are not satisfied that this is a commercial decision, or that the value of the business to the shareholders will be preserved under a three-way split."
About 150 work at the Wellington head office and it is unclear where the three new companies will be based, although Twizel or Christchurch, Hamilton and Huntly have been mentioned.
It is expected some Wellington staff will apply for jobs in those areas, although some jobs may be lost. Regional power station workers are likely to transfer to the new companies.
Mr Frow said overall, more staff were likely to be employed to run the three companies than worked for the existing ECNZ.
That company has about 750 workers at present.
Dunedin-based United Electricity chief executive Antony Fowler said the reforms were "really exciting".
They had three elements, he said. The first was the three-way split of ECNZ. The company produced about 60% of New Zealand's electricity now but this would be reduced.
By 2002, the market share was expected to be: Manapouri-Waitaki River 30%, Waikato River 13%, Huntly-Tongariro 17%, Contact Energy about 25% and the private sector 15%.
Generating companies sell electricity through a market to electricity companies such as United. To ensure price drops were passed on, the Government would split these companies' line and energy businesses, so costs were clearly shown.
United had done this about four years ago, he said. It sold electricity to customers, and separate companies such as Dunedin Electricity ran local line networks.
This separation was the second element of the reforms.
The third was a push toward the type of electricity meters United had been promoting, which would allow householders to choose from which company they bought energy.
Mr Fowler was certain wholesale prices for the electricity generated would drop. Assuming there was no major drought for the next five to seven years, there would be an oversupply of power: "That has got to work to force prices down".
Industry estimates of energy price drops ranged from small amounts to more than 20%.
Line charges would remain and so the energy price drops would have a larger impact on commercial users, because line charges comprised less of their bill, he said.