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A multi-million dollar settlement between power companies is looming after the sector regulator confirmed that consumers paid $ 70 million more than they needed a year ago.
Photo: RNZ / Russell Palmer
The Electricity Authority has confirmed a preliminary mid-year decision that an undesirable business situation (UTS) occurred for three weeks in December 2019, when Meridian and Contact spilled excess water from the South Island’s hydroelectric dams, which caused an increase in wholesale prices.
A group of small retailers and electricity users complained about the spike in prices, which they had to pass on to consumers.
The authority’s chief executive, James Stevenson-Wallace, said the market had acted in an unusual and uncompetitive manner.
“We experienced an extreme weather event on the South Island with heavy rains and lake levels above the maximum. The generators faced record influx, resource and operational constraints. At the same time, the North Island generation was targeting conserve fuel in the future of an impending gas and HVDC (Cook Strait cable) outage. “
He said the situation was unusual and unpredictable, but the Meridian could have generated 30 percent more power instead of spilling the water.
“What we didn’t see is a normal market response: lower spot electricity prices driven by lower bids from generators spilling excess water.
“There was a lack of competitive pressure, which meant that prices remained relatively high despite an abundant water supply and no increased demand during the period. The water was wasted when it could have been used to generate power,” Stevenson said -Wallace.
He said that the magnitude and duration of the event was such that confidence in the electricity market could have been threatened.
The authority will now look at possible solutions, which would include readjusting prices over the three-week period, which could result in refunds to retailers who overpaid.
Market reform is needed
One of the complainants, Flick Electric, said the decision showed that the energy market was not competitive, was open to manipulation and needed reform.
“The electricity market is fundamentally flawed, because it allows the gentailers, the ones who generate and sell power, to manipulate the market in the first place,” said CEO Steve O’Connor.
“The EA (Electricity Authority) should focus on ensuring long-term structural change, ideally vertical separation of retailers so they cannot raise wholesale prices and use market power to stifle competition.”
He said the authority’s decision did not blame any company, but Meridian had to be “more than a slap on the wrist with a wet bus ticket.”
O’Connor said he hoped affected retailers would wait to see what the Electricity Authority decided to do regarding solutions before considering possible refunds to retail customers.
Meridian Energy said it was “disappointed” that the Electricity Authority had decided that the price hike and the causes were an undesirable business situation.
The company said it was unable to conduct an interview, but would take time to review the details of the decision.
Energy Minister Megan Woods said consumers depended on a competitive market to offer fair prices and that she would work to ensure this does not happen again.
“As Minister of Energy and Resources, it is my priority to ensure that New Zealanders reap the benefits of the cheapest electricity we produce – renewable energy.
“I will work with EA to make sure we have all the tools we need so that situations like this don’t happen in the future,” Woods said.
