NZ Steel says alleged market manipulation by Meridian cost it almost $1m
Wednesday, 19 August 2020
Meridian Energy says the Electricity Authority and the media made mistakes in reporting the scale and impact of an alleged $80 million manipulation of the electricity market in December.
But the group of electricity retailers that brought the original complaint about market manipulation said in a submission that the regulator had instead underestimated the dollar impact, which it put at $177m.
NZ Steel, owner of the Glenbrook steel mill, said that based on the authority’s original calculation, it alone had been overcharged $950,000 for electricity and the incident had further eroded “any remaining confidence” it had in the integrity of the electricity spot market.
Energy manager Alan Eyes asked the authority to “rectify the financial imbalance that occurred”.
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The Electricity Authority said in a preliminary ruling in June that Meridian Energy withheld hydro generation from its Waitaki hydro scheme to raise wholesale electricity prices in December.
It said the “undesirable trading situation” (UTS) occurred when water that could have been used to generate electricity was instead spilled from dams and estimated that had an $80m impact on the spot market.
The authority has estimated that also resulted in thousands of tonnes of unnecessary carbon emissions as thermal power stations burnt gas to generate electricity that should have produced using hydro.
It cleared Contact Energy of also causing a UTS in its preliminary ruling.
But it last week began investigating whether both Contact and Meridian had breached its “high trading standards” rules in relation to the same complaint brought by small independent retailers.
In a submission to the authority on Wednesday, Meridian said the total volume of generating capacity that could arguably have been wasted by South Island generators was 12.2 gigawatt-hours, rather than the 41GWh calculated by the authority.
“Meridian believes the authority’s preliminary decision is wrong,” it said.
Meridian also indicated it did not believe it was at fault.
“There are some improvements that Meridian can and will make for future events to ensure we maximise the use of water as a precious renewable resource.
“However, based on our review, we also believe that throughout the December 2019 events we operated consistently with the electricity market rules and consistently with the normal operation of that market,” it said in its submission.
Meridian said the authority’s error had caused it to significantly overstate the difference between actual wholesale market settlement prices over the period and the theoretical market settlement prices that “might have applied had this spill been avoided”.
The company said most consumers were not affected by the alleged manipulation as they were on fixed-price contracts but that had been “conspicuously and predictably absent in most media reporting”.
The authority appeared to reject that argument in its draft ruling in June, saying all consumers could be affected by the UTS in the long run.
”If retailers expect there to be high spot prices during times of abundant hydro storage, then retail prices will increase for consumers,' the authority said.
Ecotricity, Electric Kiwi, Flick Electric, Haast Energy Trading, Oji Fibre Solutions and Vocus said in a joint submission that water was unnecessarily spilled between November 10 and January 16 – seven weeks longer than the authority had estimated – and that both Contact and Meridian were responsible.
The authority’s final decision “and any remedial action” would provide an important precedent in terms of what is and is not acceptable trading behaviour and strategy, they said.