Yesterday the Australian Conservation Foundation and Environment Victoria called the bluff of the multinational power company playing a high stakes game over the future of power generation in Victoria.

For months electricity generators have been pushing for a massive increase in CPRS compensation. At the heart of their demand is a threat designed to make any politician go weak at the knees — electricity supply may be disrupted. Generators met with the government as recently as last week.

TRUenergy, owned by Chinese power giant CLP, owns several  coal and gas-fired power stations in NSW and Victoria, including Yallourn in Victoria. It has aggressively criticised the government’s emissions trading scheme proposals from the outset, warning in July last year that the scheme would “effectively bankrupt” generators, and they wouldn’t be able to operate after December 31, 2008.

That, needless to say, failed to occur.

In July this year, as part of a growing campaign by power generators to claim the impact of the GFC and the CPRS would cripple them, TRUenergy declared it was cancelling $100 million worth of maintenance works at Yallourn. Since then, TRUenergy have continued to claim that the reliability of supply was threatened by the CPRS, which if legislated will not start  properly until mid-2012.

Under the CPRS, TRUenergy alone will receive more than  $700 million worth of free permits over five years. TRUenergy and other generators want compensation tripled to between $8 billion-$10 billion over five years for the sector.

There is industry speculation that TRUenergy has deliberately been more aggressive than other generator owners because it is considering leaving Australia, and accordingly can afford to damage its relationship with the Victorian and federal governments.

Earlier this week, TRUenergy switched from stick to carrot, saying it would invest in new gas-fired generators — doubling its Tallawarra facility in NSW and constructing a new plant in the Latrobe Valley — if its balance sheet “was not wiped out by the emissions trading scheme”.

The ACF and Environment Victoria yesterday wrote to the Australian Energy Regulator urging an investigation of TRUenergy’s claims that there is a systemic threat to power supplies (click on the letter for full document.)

Today there was another round in the game of bluff, with the generators leaking “confidential legal advice” to the AFR about the possibility of supply disruptions and even an “Enron-style contagion”.

Only the generators know their exact financial position and how much they are bluffing. The financial crisis has undoubtedly seriously affected their financing options. A senior Coalition figure tells of US investors who have simply crossed the Australian power industry off their areas of interest.

But yet again, there is a peculiar distinction between what large polluters say in their quest for additional compensation, and what they tell key financial stakeholders such as  customers and shareholders. In its presentation to investors in February, TRUenergy simply said it estimated it would receive about 25 million  free permits and would lobby to receive more. The CPRS was not even mentioned in CLP’s brief description of Australian issues to investors in September.

No mention of possible disruption to supply.

It’s a similar story from British multinational International Power PLC, which owns Hazelwood and Loy Yang B. In an interim statement to investors in the UK yesterday, International Power simply said about the CPRS “we will continue to engage with government on scheme design and implementation?”. That company has a $445 million tranche of debt due for rollover in February. “We are actively reviewing refinancing options, whilst closely monitoring developments on the proposed CPRS,” the statement said.

In a conference presentation in the US last week, a company representative said that it was “very actively engaged” on the CPRS but that the Australian market looked good: “significant improvement in results across the portfolio — improved availability, higher prices, price spikes from extreme weather events”. The most serious warning about the CPRS was the bland statement “clarity of CPRS required before further investment decisions can be made”.

Again, nothing about supply disruptions.

Yesterday TRUenergy appeared to back away from the threat to cut power supplies. The Age reported that, in response to the ACF/Environment Victoria letter, TRUenergy had said “at no point in time has the company believed or publicly stated that it may default on supply contracts”. That’s only two days after TRUenergy CEO Richard McIndoe said about the gas-fired power stations ”it takes over three years to permit and develop any new power station. If these developments do not go ahead, we see a very real risk of electricity outages in Victoria in the future”.’

Environment Victoria’s Mark Wakeham explained to Crikey that, even in the event of TRUenergy shutting down Yallourn, under National Electricity Market contracting arrangements, it would be required to source power to meet its contracts, including buying electricity on the spot market if necessary.

According to Wakeham, the broader concern is that the federal government may provide further compensation to incumbent electricity generators, thereby discouraging new investment in cleaner gas-fired power stations. “Origin is constructing a 552MW gas-fired generator at Mortlake in Victoria, with the potential to expand to 1600MW. Santos is considering gas-fired generators. Additional compensation for existing coal-fired generators means they can go on polluting at low cost, or use taxpayer funding to build their own gas-fired generators. Their competitors have to factor that in to their investment decisions.”

There is no doubt electricity generators face a much more difficult financial environment in the wake of the GFC and, to an extent, because of the CPRS. But TRUenergy appears to have significantly overplayed its hand by threatening to turn off the lights, especially given it has failed to tell investors or key customers that there is any such problem.