Electricity regulator 'failing to protect consumers', says power firm

Thursday, 22 April 2021

The electricity market authority has suggested resetting spot prices for an “undesirable trading situation” in 2019 but decided market conduct rules weren’t broken.

Electric Kiwi chief executive Luke Blincoe says the Electricity Authority is “asleep at wheel” and has appealed for Energy Minister Megan Woods to step in, saying he has no confidence in the electricity market.

Blincoe was angered that Meridian wouldn’t face any punitive sanction for wasting water it could have used to generate electricity in 2019, after the Electricity Authority announced on Thursday that it had cleared both it and Contact of breaching trading standards rules.

The authority described its market conduct rules as lacking clarity and said they were hard to apply.

Blincoe said the authority had 10 years to get its rules right, so if it was blaming the rules it was “finding itself at fault”.

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“This is more of the same track record of the authority failing to create rules that protect consumers,' he said.

“The impact is complete loss of confidence in the market. It is consumers who will pay for this at the end of the day.”

The Government should now move to structurally separate ‘gentailers’ and break up Meridian’s generation assets, he said.

Meridian chief executive Neal Barclay and then Electricity Authority strategy manager James Tipping discuss action to correct the 'undesirable trading situation' in 2019.

“At some point the minister has got to make a decision about whether she has got the right regulatory body.”

Woods responded that the authority had her confidence.

“It is important to note that the Electricity Authority is an independent agency which I cannot direct to regulate in specific ways,” she said.

“But as I have said previously I will work with the EA to make certain we have all the tools that are required to regulate effectively.”

The Government had agreed to progress amendments to the Electricity Industry Amendment Act to address issues raised by the Electricity Price Review in 2019, she also said.

Electric Kiwi chief executive Luke Blincoe says the Electricity Authority is failing to protect consumers.

A Meridian spokeswoman said it supported the Electricity Authority’s decision to discontinue its trading standards investigation.

“We believe that is the correct decision in the light of the information we presented to the authority during its investigation of this matter,” she said.

The authority’s market conduct investigation began after seven independent electricity retailers brought a complaint in December 2019.

That alleged both Meridian and Contact Energy had unnecessarily spilled water they could have used for generation during a period of high hydro inflows that month, resulting in spot market prices being higher than they should have been.

The authority agreed following a separate investigation last December that an “undesirable trading situation” had occurred over a period of about three weeks, and in March suggested resetting spot market prices over the period by a nominal sum of almost $80 million.

Meridian has estimated the reset will cost it about $2m.

Energy Minister Megan Woods said it was “not useful” for her to examine whether she felt let down by Meridian.

Electricity Authority chief executive James Stevenson-Wallace said in March that Meridian had been withholding generation from its Waikiti River hydro scheme during the UTS to avoid power cables between the South and North islands reaching capacity and it did that to stop South Island prices reducing”.

“That was right at the front and centre of the confluence of factors that came together. There were multiple issues that we outlined – that was one of them,” he said.

But the authority has now cleared both Meridian and Contact of breaching its “high standard of trading conduct” rules in an investigation it carried out through a separate regulatory process, meaning neither with face any punitive sanctions over the UTS.

Stevenson-Wallace said in a statement that Meridian and Contact’s conduct during the period was “sheltered by safe harbour provisions”.

“The investigator concluded Meridian and Contact did not breach the high standard of trading conduct because available capacity was offered, offers were made and revised in a timely manner, and one of the set of conditions of the safe harbour rule was met.

“Specifically, both generators demonstrated consistent offers in periods where they were pivotal with offers in periods where they were not,” he said.

The authority is currently reviewing its trading standards rules.

“The authority considers a lack of clarity in how the rules are structured presents interpretation issues and challenges for how the standards are applied in practice,” it said in its statement.

“The authority considers the proposed new rules will help address the acknowledged problems with the current ‘safe harbour’ provisions, including that the provisions are difficult to apply in practice and may shelter and facilitate behaviour inconsistent with a high standard of trading conduct,” it said.

Stevenson-Wallace defended the time it was taking to revise the rules after identifying a problem, saying that was four years, not 10 years.

He again declined to provide an assurance that the reset of the spot market prices it has proposed would prevent companies from profiting from activities the authority had determined to be undesirable, or that all electricity consumers who might have been impacted by the UTS would be fully compensated.

“I don’t think that is inappropriate,” he said with regard to the authority’s inability to provide those assurances.

But he said the public could have confidence in the authority, saying it had taken all appropriate steps to correct the UTS with a high level of integrity and with transparency.

“We have applied the rules as they fit today and we have committed to the industry and the public – for the benefit of consumers long term – to reform rules to make sure we are managing the behaviour of firms in the sector,” he said.

The UTS occurred less than two months after Woods released her response to the Electricity Price Review which she said would level the electricity playing field for consumers and create “greater transparency over the big power companies”.

Woods told Stuff last week during an interview in which she played down the likelihood of major structural reforms to the industry that it would “not be particularly useful” for her to examine whether she felt let down by Meridian, saying there were “processes in place” run by the Electricity Authority.

“The fact that there has been an undesirable trading situation that has been called by the EA shows this is something that was being policed by the regulator,” she said.

“Do I think that it is the right thing to do to be spilling water so you can keep the rates of electricity higher?

“That doesn’t benefit anyone,” she said.

Blincoe said that if the Electricity Authority’s ruling on Thursday brought about more fundamental change then “something good can come of it”.

But that required intervention from the minister, he said.