Wellington, Dec 9 NZPA - The Government is set to ride roughshod over the jewel in its energy crown, Meridian Energy, by stripping it of two key hydro-electricity stations at the head of the Waitaki River, and handing them over to government-owned rival Genesis Energy.

The transfer of the Tekapo A and Tekapo B stations is part of draft law changes to be introduced to Parliament tomorrow to move assets between state-owned electricity generators in a bid to improve competition in the sector.

"Competition is vital in order to constrain future price increases," Energy Minister Gerry Brownlee said today. Power companies faced public outrage earlier this year after a Commerce Commission report said they had overcharged customers $4.3 billion. The big four generator-retailers didn't break the law but used their market muscle to maximise profits, hiking prices 72 percent between 2000 and 2008 while inflation went up only 29 percent.

The Electricity Industry Bill to be introduced tomorrow would constrain price increases, increase security of supply, and ensure effective and streamlined governance, Mr Brownlee said. "Achieving security of supply and retail competition, while ensuring the signals for investment in new generation are clear, form the purpose of the bill."

The law changes draw heavily on a ministerial review into the electricity market, and would put "the boot back on the consumer's foot," he said.

Meridian said it was studying the decision to transfer ownership of the Tekapo hydro stations to Genesis. 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.

But some commentators have noted that transfer to Genesis of Tekapo A and Tekapo B hydro stations -- and control over their use of water from the lake -- may give the North Island-based generator control over flows to the remaining six hydro stations Meridian will have on the Waitaki River.

Retailer Powershop's chief executive Ari Sargent told NZPA there was a risk the changes would actually reduce security of supply.

The Tekapo stations provided only 15 percent of the Waitaki generation, but were gatekeepers for flows into Lake Pukaki, and the timing of those flows would be crucial to Meridian. "The changes signalled today offer scope for Genesis to `game' the release of water to Meridian," he said. Timing of such flows could be affect electricity pricing.

Mr Brownlee plans to axe the Electricity Commission and replace it with a slimmed-down Electricity Authority, with fewer objectives and functions. A new security and reliability council will monitor Transpower's performance, and responsibility for approving power grid upgrades will go to the Commerce Commission.

Mr Brownlee said the ministerial review of the sector had signalled a need for improved governance in the electricity sector.

Key elements include:

* lifting prohibitions on lines companies taking part in electricity retailing;

* requiring generators and retailers to compensate consumers for conservation campaigns or dry-year power cuts;

* taking the Tekapo A and B hydro stations from Meridian Energy and giving them to Genesis Energy. The 70 percent dominance of hydro generation by Meridian will be reduced to 50 percent;

* giving the Government's Whirinaki "peak demand" station to Meridian Energy to fill gaps in its electricity supply from wind turbines;

* requiring "virtual asset swaps" between Meridian, Genesis and Mighty River Power during a 15 year contract, to give each company ability to provide increased competition where they presently have little generation capacity in the North Island or South Island -- Meridian will have to provide 1000 gigawatt hours (GWh) annually of South Island electricity to Mighty River Power, and buy a similar amount from Mighty River, with a similar deal for 450GWh with Genesis;

* all major generators having to make available 3000 GWh of electricity to a hedge market to give the sector more flexibility;

* a $15m fund over three years to promote customer switching between retailers.

Labour opposition leader Phil Goff said the ministerial review offered nothing to suggest that the law changes would give relief to hard working New Zealanders struggling with their high power bills.

"Power bills will continue to go up and this won't make any difference."