'Premature' to say whether $13 billion Meridian could be forced to shed assets

Friday, 16 July 2021

The Electricity Authority says it would be premature to “jump to conclusions” about its review which is due to be completed next month.

The Electricity Authority is looking at whether the size of power companies may be hindering competition in the electricity market but won’t say whether it could require Meridian Energy to downsize.

The regulator released a heavily-redacted briefing to Energy Minister Megan Woods on Friday updating her on its review of the wholesale electricity market.

It said the release was intended to give the sector “visibility of the review, how it is progressing and what it will include”.

The authority said it was taking a “structure-conduct-performance” approach to assessing the wholesale market.

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“Structure is about market make-up and concentration, for example is the number and relative size of participants enabling them to set prices that are uncompetitive?” it said.

The review would also examine whether generators were earning profits that would not be possible in a competitive market, it said.

The Electricity Price Review described the structural separation of gentailers as unnecessary, and for now the Government is sticking by that advice.

The authority would not say whether it was considering recommending that Meridian Energy – which is valued at $13.5 billion on the NZX – should be required to offload some of its generation assets.

General manager of market policy Andrew Doube said the review had “the potential to identify a variety of issues which will need detailed consideration”.

The authority is due to complete its review next month, but Doube said it would be “premature to jump to any conclusions on what it would discover”.

Meridian Energy said it didn’t have any comment.

The authority has previously staunchly defended the working of the electricity market, despite soaring wholesale prices that have led to major power users curtailing production this year.

It said in April that the market was well-regarded internationally and was “doing the job it is designed to do, reflecting lower levels of supply – hour by hour and day by day”, prompting a backlash from independent retailers.

Luke Blincoe, chief executive of independent power company Electric Kiwi, said Meridian should be required to shed some of its power plants.

Market power needed to be addressed and no amount of rules would help, he said.

“We believe structural change is what is required.”

Rival Flick Electric has instead petitioned for all the majority state-owned gentailers to be split into separate generation and retail businesses.

Meridian’s position in the electricity market came into focus last year, after the Electricity Authority determined that an “undesirable trading event” (UTS) had occurred in 2019, that involved the spilling of water from South Island dams that should have been used to generate electricity.

Authority chief executive James Stevenson-Wallace told Stuff in March that “front and centre of the confluence factors” that led to the UTS was Meridian withholding generation from its hydro scheme on the Waitaki River and that it did that “to stop South Island prices reducing”.

The authority cleared Meridian and Contact of breaching trading standard rules over the incident in April, while admitting its rules lacked clarity and were “hard to apply”, and has yet to finalise a fix for the UTS.

The matter appears to have left some with a sense of unfinished business.

The Major Electricity Users Group accused the authority in a submission in May of wording its final report on the UTS to “sugar coat what was unbridled exercise of market power”.

Fonterra told the Electricity Authority the electricity market was complex and opaque and that its current structure was no longer fit for purpose and the authority needed to “restore confidence”.

A Meridian spokeswoman said the MEUG’s description of the UTS was not consistent with the EA’s finding that it was the result of “the collective impact” of a confluence of factors.