Meridian in the gun over power prices

Generator accused of manipulating hydro storage

New Zealand’s biggest electricity generator may have spilled water unnecessarily, causing gas generation to fire up and raising prices for consumers.

The Electricity Authority (EA) yesterday released a preliminary decision that an alleged Undesirable Trading Situation (UTS) took place in the wholesale electricity market in late 2019.

In December a group of small retailers alleged that Meridian Energy and Contact Energy controlled South Island hydroelectricity storage in such a way that more water was spilled than necessary. It came during a period of heavy rain.

In turn, this caused prices to rise to the point where North Island thermal generation was turned on.

The authority yesterday said its preliminary view was that a UTS had taken place.

“What we found is not what we would expect to see given the market conditions in December,” said authority chief executive James Stevenson-Wallace.

“We saw generators having to spill floodwater to keep the levels down. What we didn’t see and would have expected was lower electricity spot prices driven by lower offers from those generators spilling excess water,” he said.

“The prices remained relatively high despite an abundant supply of water and no increased demand during the period.”

Contact Energy chief executive Mike Fuge said Contact had been told that the company, as well as Genesis

I’d be concerned if companies are doing things that lead to an increase in our emissions when they don’t need to.

Climate Change Minister James Shaw

Energy, were not part of the finding.

In a statement, Meridian acknowledged the decision had gone against it. “Meridian will review this preliminary decision and will make a submission to the Authority as part of its consultation process,” said the company.

It has previously denied manipulating prices.

“Plant availability and transmission constraints restrict the volumes we can generate. We don’t spill unless we have to and only do so when required by environmental rules or to manage our dams safely during high inflow events,” a Meridian spokeswoman told BusinessDesk in December.

The authority put the impact on the spot market at $80 million between December 3 and December 18.

The finding is now open to six weeks of consultation, followed by cross-submissions, with a final decision not expected for several months. Any decision could be followed by a court challenge.

Luke Blincoe, chief executive of retailer Electric Kiwi, said this was the type of activity that was “very, very hard on retailers and pushes up prices on consumers”. The modelling used in the complaint claimed the event caused the equivalent of 6000 tonnes more coal to be burnt than was needed.

James Shaw, the Minister for Climate Change, expressed disappointment in Meridian, which has promoted itself as net zero carbon.

“I’d be concerned if companies are doing things that lead to an increase in our emissions when they don’t need to, particularly for companies that are trading on a zero emissions brand,” he said.

“If what the EA is saying is correct and they’re deliberately causing [the] Huntly [power station] to burn more than they otherwise would, that’s obviously a bad outcome for the climate.”

Parties to the complaint said it was the first time the EA had determined a UTS since 2011.

Steve O’Connor, chief executive of Flick Electric, said despite the company’s belief that the market was “fundamentally broken”, it was difficult to prove. “It’s only when you get to the extremes of the system that you can find sufficient evidence.”

During the investigation, the retailers making the complaint warned that the decision may need to be peer-reviewed, when a senior EA staffer involved in UTS investigations resigned to join Meridian.