Background
12. The 2001 winter was dry and cold. In the period 1 January - 1 August national inflows were the lowest in 71 years of records (22% lower than mean). There was also a significant increase in demand (in June-July demand was 5.8% higher than the same period in 2000) with record export production and unusually cold weather over all New Zealand.
13. This situation of constrained supply and increased demand led to a ten-fold increase in spot prices compared to recent years (i.e. 4c to over 40c/kwh). Large industrial consumers and net retailers exposed to the wholesale price, with limited opportunity to gain hedge cover, faced financial uncertainty. One large net retailer, On energy, exited the market.
14. As uncertainty in electricity supply and wholesale prices increased, the Minister of Energy initiated industry meetings from 29 July through 8 September. During this period the Government implemented a conservation campaign calling for a 10% saving in electricity usage for 10 weeks for the public and a 15% saving for the government sector.
15. By September, hydro lake levels stabilised and warmer temperatures reduced demand. Wholesale prices fell to around 8c/kWh in September, and fell further subsequently.
16. After the risk of power shortages was averted, the Minister of Energy announced in September a Post Winter Review (CAB Min (01) 28/13 refers). 47 submissions and 12 counter submissions were received. A summary was distributed to Ministers on 9 November 2001. All submissions and the summary were posted on the website. Key points from the summary submissions are attached as Appendix 1.
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