Electricity Authority announces extra step in Meridian investigation

Thursday, 29 October 2020

Meridian Energy said there had been “many times throughout the last decade” when hydro generators had been spilling water while offering electricity “at non-zero prices”.

The Electricity Authority has announced a surprise extra step in its investigation of complaints that Meridian and Contact Energy manipulated the wholesale electricity market in December.

The authority said in a preliminary ruling in June that Meridian contributed to an “undesirable trading situation” (UTS) by spilling water from its South Island dams that should have been used for electricity generation.

It had been expected to then move straight on to a final decision after receiving submissions and cross submissions from the industry.

But the regulator announced on Thursday that it had decided to publish a “supplementary paper for a short consultation” in light of the complexity of the information and subsequent analysis required.

* NZ Steel says alleged market manipulation by Meridian cost it almost $1m

* Genesis boss adds to Meridian's woes voicing 'disappointment' over hydro spills

The authority said it intended to make a final decision on the complaints in December.

Its preliminary decision in June cleared Contact of being involved in a UTS, but the authority is separately considering whether either or both companies breached separate rules relating to their trading conduct.

Electricity Authority chief executive James Stevenson-Wallace said in June that Meridian’s activities could have resulted in other electricity retailers having had to pay an extra $80 million for power on the wholesale market.

The seven independent retailers that brought the complaint estimated the wasted hydro opportunities also resulted in 6000 tonnes of unnecessary carbon emissions.

The issue at the heart of the investigation appears to be whether Meridian was within its rights to price virtually free hydro generation at a level intended to ensure demand for its power did not saturate capacity on the Cook Strait cables and go on to crash wholesale prices in the South Island.

Meridian doubled down on its defence in August when it suggested its behaviour had not been unusual.

It indicated there had been “many times throughout the last decade” when hydro generators had been spilling water while offering electricity into the wholesale market “at non-zero prices”.

“This is not an idealised perfectly competitive market where the only rational response is to offer at the level of short-run generation costs,” it submitted.

Flick Electric chief executive Steve O’Connor said the authority was probably being “ultra conservative with adding this extra consultation and ensuring a robust process”.

“As we know any decision by the EA is subject to legal challenge.”

The decision would set a precedent, he said.

“It will tell us whether misuse of market power and market manipulation are agreed to be unacceptable by the authority and it will tell us whether we can have confidence in the authority to ensure the integrity of our wholesale market,” he said.

”The final decision on this UTS in December provides the perfect opportunity for the EA to put their words into action, especially as we move towards a future that aims to do better by our planet,” he said.