Meridian involved in 'undesirable trading situation' says Electricity Authority in preliminary decision

Tuesday, 30 June 2020

Meridian Energy has been undercutting its standard pricing in an offer on comparison site SwitchMe.

Meridian Energy pushed up power prices in December by unnecessarily spilling water from its south island dams that could have been used for generation, the Electricity Authority said in a preliminary ruling.

The authority said the 'undesirable trading situation' (UTS) could have resulted in other electricity retailers having to pay an extra $80 million for power on the wholesale market, though the final cost could not yet be determined.

'Meridian's activities led to more expensive generation running in the North Island at a time when there was excess fuel in the south,' Electricity Authority chief executive James Stevenson-Wallace said.

'By our calculation a total of about 41 gigawatts-hours of additional energy could have produced during December.

'North island generation – including more expensive thermal generation – was dispatched despite excess 'spill' and abundant hydro fuel.'

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Independent retailers filed a complaint, saying conduct resulted in unnecessary, costly thermal generation.

The authority's investigation resulted from a complaint brought by a group of seven independent electricity retailers, which accused both Contact Energy and Meridian of manipulating the price of electricity and indirectly causing 6000 tons of carbon emissions.

Stevenson-Wallace said the authority's preliminary view was that Meridian was involved in a 'UTS' between 3 and 18 December 2019 but Contact Energy was not.

'What we found is not what we would expect to see given the market conditions in December.“

'We had an extreme weather event in the South Island with severe rainfall and lake levels over and above the maximum.

'Not surprisingly, we saw generators having to spill flood water to keep the levels down,' he said.

'What we didn’t see, and would have expected, was lower electricity spot prices driven by lower offers from those generators spilling excess water.

'The prices remained relatively high despite an abundant supply of water and no increased demand during the period,' he said.

Flick Electric chief executive Steve O'Connor says the preliminary ruling against New Zealand's largest and part state-owned electricity company Meridian is good for consumers and 'begs some big questions'.

Meridian acting chief executive Guy Waipara said it would review the authority's preliminary decision and make a submission as part of its consultation process.

Contact spokesman Paul Ford confirmed its understanding was that Contact had not been judged to have engaged in wrongdoing.

Steve O'Connor, chief executive of Flick Energy, which was one of the independent retailers that brought the complaint, believed that if the Electricity Authority's decision was upheld, it would need to recalculate the price that should have been paid for power during the two-week period.

He assumed that if the authority was 'pointing the finger' at Meridian – which is 51 per cent government-owned – it would need to foot the bill for at least a portion of any refunds, plus any penalties that resulted'.

'Basically $80m has been spent in the spot market that shouldn't have been spent.

'There is no real precedent for this,' he said.

O'Connor said the authority's preliminary ruling was 'absolutely a win for independent retailers' and good for consumers.

But complaints such as the one against Meridian were hard to prove, he said.

'The only reason why this UTS has got away is we have watched and waited for an extreme moment where it is really clear what the behaviour is.'

The spat belies a fundamental disagreement within the electricity industry over whether its current regulatory settings work in the interests of competition and consumers.

Some independent retailers, including Flick, have called for large state-owned generators Meridian, Mercury and Genesis to be structurally separated, so they could not sell power they generate directly to consumers.

Such a change would mirror that of the ultrafast broadband market, where network companies such as Chorus are not allowed to sell ultrafast broadband direct to consumers.

Stevenson-Wallace said there would be six weeks for parties to make submissions on the Electricity Authority's preliminary ruling, and then another three weeks for cross-submissions.

The authority was not yet ready to discuss the potential 'corrective actions' it could take if its preliminary ruling was upheld, he said.

Luke Blincoe, chief executive of Electric Kiwi, which was another of the independent retailers that laid the complaint, said the result was 'more or less' what he expected, although the Electricity Authority had shortened the period it was concerned about.

He said this was another sign that the wholesale market was not working as it should – something that Energyclubnz founder David Goadby highlighted as a reason behind its decision to quit the market.