POTENTIAL POWER SHORTAGES COULD MEAN LIGHTS OUT FOR LABOUR

UNCLAS SECTION 01 OF 02 WELLINGTON 000189

SIPDIS
SENSITIVE

STATE FOR STATE FOR EAP/ANP
PACOM FOR J01E/J2/J233/J5/SJFHQ

E.O. 12958: N/A
TAGS: PGOV ENRG SENV NZ
SUBJECT: POTENTIAL POWER SHORTAGES COULD MEAN LIGHTS OUT FOR LABOUR

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1. (SBU) Summary. A dry winter has prompted debate about New
Zealand's power supply as low hydroelectric lake levels bring about
the prospect of rolling power shortages throughout the country.
Fearing a political backlash, the Labour Government denies there is
a problem, while quietly taking measures to bolster electricity
supply. The power industry has conducted a public information
campaign urging households to conserve electricity. The opposition
National Party has seized on the issue to berate the government.
Recent rains have offered some respite but analysts agree that if
there are power shortages in the run up to the election, Labour's
defeat at the polls will be a near certainty. End Summary.

Is There a Power Crisis?
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2. (U) An extended period of dry weather has meant that water
levels in lakes that drive New Zealand's hydroelectric power plants
are currently low enough to warrant concern that the country could
face a power crisis during the next two-three months. However, in a
June 10 press conference, Energy Minister David Parker dismissed
claims the country was facing rolling power cuts and announced that
the Government, having considered the situation in Cabinet, would
take no direct action. Parker attributed the situation to a dry
winter, not unlike several in the past decade that have not resulted
in power cuts. Prime Minister Helen Clark also denied any
suggestion of an emergency, yet was careful to remind New Zealanders
to practice prudent energy consumption in the short term. The
Government also endorsed the launch of an industry-backed media
campaign aimed at domestic, commercial and industrial users urging a
reduction in electricity consumption by up to 15% during peak early
evening periods. In addition, the Government has placed a retired
plant in New Plymouth back into service and moved forward by three
months the opening of a new geothermal plant.


3. (U) The Government's sanguine assessment of the present power
situation contrasted with that of Patrick Strange of Transpower,
which owns and operates New Zealand's high-voltage electricity
transmission grid and is helping to coordinate the power industry's
response to threaten shortages. Strange announced that his industry
is concerned about energy security in the current environment. He
noted that New Zealand energy industry is "risk averse; any time
conservation measures are called for means the situation is serious
for the power sector.

Possible Political Repercussions for Labour
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4. (SBU) The Labour Party is conscious of the ramifications
involved if power cuts became a reality. With the election only
months away - scheduled for October or November - Labour are polling
well behind the opposition National Party. Any prospect of an
election victory for Labour would be seriously compromised if there
were power shortages that impact on voters' quality of life. If the
situation worsens, National will focus the public's attention on any
energy cuts. With this is mind, Parker and Clark continue to assure
the public that the Government is managing the problem effectively
and the situation is well in hand. Recent rains on the South Island
(where most of the hydro-lakes are located that supply the country's
hydroelectric power) have ameliorated the sense of anxiety within
the Government, but the possibility of power shortages remains given
the country is moving into the winter months when electricity demand
is highest.

The Blame Game
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5. (U) The National Party quickly seized on the prospect of a
looming power crisis and did its best to talk it up in an effort to
embarrass the Labour Government. National Energy Spokesman Gerry
Brownlee accused the Government of ignoring the lower hydro-lake
levels and relying on increased rainfall to guarantee New Zealand's
power supply.
Some Labour supporters, however, laid the blame squarely at the feet
of the previous National Government, which in the late 1990s
introduced a series of reforms deregulating the electricity
industry. Parker criticized the media for over-hyping the story and
unnecessarily worrying the public. Phil O'Reilly, the chief
executive of Business New Zealand, argued that successive
governments are at fault, and their poor decisions have led to New
Zealanders living with the threat of electricity shortages.

Power Problems the New Norm in NZ
--------------


6. (U) New Zealanders have become all too familiar with both the

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threat and realization of power cuts as the country has lurched from
energy crunch to energy crunch in recent years. In 2001, 2003 and
2006 the public was asked to save power before rain filled the
hydro-lakes sufficiently to head off any serious problems. In 1992,
New Zealand experienced a serious power shortage when businesses
were forced to use liquid petroleum gas and diesel. During this
crisis, street lighting was rationed and households endured hot
water restrictions for up to 18 hours a day. Television stations
went off the air early so viewers went to bed. In 1998, dry weather
conditions, high electricity demand and failing infrastructure all
combined to shut down power to the central business district in
Auckland, New Zealand's largest city and financial hub, for five
weeks resulting in a loss to business of tens of millions of
dollars.

Explaining the Cycle of Power Crises
--------------


7. (U) New Zealand's tendency to experience power shortages is
connected to the country's heavy reliance on hydro-based energy to
satisfy demand. New Zealand hydroelectric stations usually produce
about 75 percent of New Zealand's electricity. Periodic dry spells
can quickly reduce output to 50 percent, and coal, diesel and
gas-fired power plants make up the shortfall. However, the strain
on the national grid often becomes too much, particularly during
winter when demand is highest.


8. (U) The Labour Government's commitment to hydro-energy and its
promise to make New Zealand 95 per cent dependent on renewable
energy exacerbates nervousness about the country's energy security.
Clark has announced that the commission of a new geothermal plant
will be fast-tracked to alleviate some strain. Some energy analysts
claim that as long as New Zealand's energy security is dependent on
the vagrancies of the weather (rainfall, wind) at the expense of
more traditional means of energy production (coal, gas-fired),the
prospects of power shortages will continue.

Comment
--------------


9. (SBU) Given recent polls, the last thing Labour needs is a
power shortage leading to intermittent power cuts as happened in

1992. So far, analysts believe that the conservation measures
already familiar to the New Zealand public will see them through
another winter. But the Government is dependent on continued
rainfall to keep the lake levels up. The country will soon move
into a period of increased energy usage in July and August, as
temperatures drop and the winter school break has families spending
more time at home. If the weather does not cooperate and there are
power shortages, that could dash any hopes that Labour has for a
narrowing of the polls closer to the election. End Comment.
McCormick