Wellington, Dec 10 NZPA - Energy Minister Gerry Brownlee's proposed re-jig of the electricity sector may actually raise electricity prices and reduce the security of power supply, says a retailer in the sector.

Mr Brownlee yesterday announced law changes -- which he will introduce to Parliament today as the Electricity Industry Bill -- he claimed could have a bigger impact than the reforms of a former minister, Max Bradford, in the 1990s.

But the chief executive of a electricity retailer Powershop, Ari Sargent, last night said there is a risk the proposed changes will actually contribute to higher prices.

Mr Sargent said a lack of competition in the market needed to be addressed, but the planned re-shuffle of generation assets could be a mistake.

The Tekapo A and B power stations which Meridian Energy is to be told to hand over to a rival state-owned company, Genesis Energy, were on the first lake in the Waitaki River, which was the lifeblood of New Zealand's electricity supply system.

"Tekapo can control the water available to generate electricity throughout the entire Waitaki system," he said. It would weaken the coordination of water flows to Meridian's remaining six hydro stations downstream. And it was "completely reckless" to provide commercial incentives to a single supplier who had the power to restrict water to the rest of the downstream hydro stations.

It was not a matter of the water not reaching the remaining Meridian stations, but a question of how flows could be timed to affect wholesale electricity prices. There was potential for Genesis to "game" the release of water to the Meridian stations.

"This puts the security of supply at risk and will see a change in river operation that will increase wholesale prices and prices to consumers, particularly in the South Island," Mr Sargent said.

Meridian chief executive Tim Lusk said the company would take time to fully understand the implications of recommendations from the ministerial review. "The Government is our owner and it is our role to work with the decisions it makes," he said.

His company will be given the Government's 155-megawatt, diesel-fired reserve generator at Whirinaki to plug gaps in its electricity production as an increasing proportion of its energy is generated by wind turbines, which operate only when the wind blows. In August, a review panel said the nation should stop relying on the Whirinaki power station for emergency supplies.

Mr Sargent said another proposed reform, to require retailers such as his company to make payments to consumers in the event of a conservation campaign or dry year power cuts, was illogical, because retailers had no control over the security of supply.

Wholesale power hit record prices in June 2008, and consumers were asked to reduce consumption because of low water levels in hydro lakes that generate about 60 percent of the nation's electricity.

"The onus needs to be with generators," Mr Sargent said. "Forcing these costs on retailers will create new barriers to entry and further limit competition."

And Mr Brownlee's plan to put a floor on spot prices during a conservation campaign or dry year power cuts had a high probability of leading to a rise wholesale energy costs to cover the possibility of occasional dry periods.

Genesis, Meridian and a third state-owned generator, Mighty River Power, will be required to offer each other 15-year hedge contracts to improve their ability to compete with each other on both the nation's major islands, and hedge contracts used by all players, including listed company Contact Energy will have to be standardised to help the sector manage their exposure to volatile power prices.

Lines companies, such as Vector, will also be allowed to invest in generation and retailing, but will have to develop standard network price structures and contracts.

Mr Brownlee said his proposed law changes should be enacted by October 2010.