Starting point for Meridian sanction should be $38m, Haast Energy says

Monday, 9 November 2020

Meridian booked “excess revenues” of $38m from alleged market manipulation, Haast Energy says.

Meridian Energy should pay more than $38 million for unnecessarily spilling water from its South Island dams, independent retailer Haast Energy has told the Electricity Authority.

The Electricity Authority expects to decide next month whether Meridian and Contact Energy manipulated the price of electricity by wasting water that they could have used for hydro generation late last year.

The authority found in a draft ruling in June that Meridian had created an “undesirable trading situation” (UTS), while clearing Contact.

It is separately investigating whether both companies breached its trading standards rules in relation to essentially the same allegations.

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Haast Energy managing director Phillip Anderson said in a new submission to the authority that its simulations showed Meridian “extracted excess revenue” of $38m as a result of its conduct, while Contact gained $23m.

But the sanctions they should face should be higher, he told the authority.

“We would support a sanction that not only required Contact and Meridian to pay back the excess spot prices, but also included a penalty element to send a strong message to generators that they should not use market power or engage in this type of conduct,” he said.

Anderson said Meridian and Contact’s conduct had resulted in more coal-fired generation from Genesis Energy’s Huntly power station.

Meridian’s alleged rule breach was “particularly cynical and hypocritical given Meridian likes to virtue signal about being 100 per cent renewable”, he said.

Last month, the Advertising Standards Authority (ASA) ruled that Meridian misled consumers by suggesting in advertisements that they would receive and support renewable power by switching to the company.

Contact Energy’s hydro generation head Boyd Brinsdon said it had always disagreed with the allegations made against Contact.

The Electricity Authority expects to finalise its ruling next month.

”At the time there was more water than we could use for generation, given the Clutha River was in significant flood,” he said.

A Meridian spokeswoman said the amount of water that the authority had classified as “over-spill” was immaterial in the context of the volume of hydro water inflows at the time.

“As we’ve always said, the authority’s investigation covered a period of truly exceptional South Island flood conditions with inflows among the highest ever recorded.”

There was “no ability in law” for the authority to impose a penalty on any one party, she said.

“The authority’s role is to correct any undesirable situation.”

Meridian later clarified that its view was that the UTS investigation would essentially seek to 'put right' any distortion of the spot market that was deemed to have occurred, while any punitive action would occur through the “trading conduct” provisions.

Flick Electric chief executive Steve O'Connor says the electricity market is “broken”.

”These are two very separate processes and the authority has only progressed and published preliminary findings in respect of the UTS provisions,” its spokeswoman said.

Flick Energy chief executive Steve O’Connor said a consultation paper released by the Electricity Authority on its UTS investigation last week suggested the regulator was “continuing on a path to hold Meridian accountable for its action manipulating the market last year”.

Its draft decision indicated electricity retailers could have lost out to the tune of $80m, he said.

The authority indicated in its latest paper that the UTS could have lasted nine days longer than the 16-day period that it identified as problematic in its draft ruling June.

“Meridian shouldn’t be allowed to get away with what we view as anti-competitive behaviour that makes it harder for everyday New Zealanders to pay their power bills,” O-Connor said.

“However, the fact that the market is set up in a way that even allows this sort of scenario to occur, and which incentivises manipulation of the market to make excess profits, points to the urgent need for wider change to the broken electricity market in New Zealand,” he said.

There have been calls for large state-controlled “gentailers” Meridian, Mercury and Genesis to be structurally separated into separate retailers and generators.

The issue at the heart of the UTS 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.