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The Electricity Authority says the lack of competitive pressure led to a period in which electricity prices were higher than they should have been, despite the fact that water is “plentiful, cheap and available for generation.” .
The authority has been investigating a complaint from Haast Energy Trading, Ecotricity, Electric Kiwi, Flick Electric, Oji Fiber, Pulse Energy Alliance and Vocus, received on December 12 of last year.
Previously, it issued a preliminary ruling stating that Meridian Energy raised energy prices in December 2019 by spilling water from its dams on the South Island that could have been used to generate power and lower wholesale electricity prices.
An undesirable commercial situation (UTS) is a situation outside the normal operation of the electricity market that threatens, or may threaten, the trust or integrity of the wholesale market and that cannot be addressed by other provisions of the Electricity Authority code.
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Energy retailers that do not generate their own energy depend on the wholesale market to purchase electricity for their customers. Some sell it with prices tied to the wholesale price, while others offer fixed prices no matter what the underlying charge is.
The authority confirmed on Tuesday that there was a UTS between December 3 and 27 of last year.
It will be consulted early next year on proposals to correct the situation.
“What we found in the wholesale market during the UTS period was far from normal results given conditions at the time,” said Electricity Authority CEO James Stevenson-Wallace.
“The market performance during the UTS period was very unusual. We experienced an extreme weather event on the South Island with severe rainfall and lake levels above the maximum. The generators faced record influx, resources and operational constraints. At the same time, the North Island generation aimed to save fuel before an impending gas and HVDC outage.
KIRK HARGREAVES / Stuff
Water that could have been used to generate electricity spilled from the dams.
“We have called this a confluence of factors, a group of factors that when combined were unusual and unpredictable. 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 the abundant water supply and no increase in demand during the period. The water was wasted when it could have been used to generate power.
“The magnitude and duration of the event was such that confidence in the market could have been threatened. That’s the UTS test and that’s what we found. “
The authority had already started investigating the market before UTS’s claim was received.
He said that while it was reasonable to expect high prices when supplies were tight, that was not the case this time.
Electric Kiwi CEO Luke Blincoe said the decision had pointed to the concentration of market power and lack of generation competition in the South Island. The UTS process would focus on the price aspect, he said, but that market dominance needed to be broken.
Retailers like his were totally dependent on the wholesale market, he said, and needed to be able to trust that it was working properly.
He said there was also a carbon impact: the excess carbon emitted when thermal generation took over where hydropower could have been generated was equivalent to up to 50,000 Toyota Corollas on the road, he said.
“By unnecessarily shedding their prey, the retailers generated between $ 70 million and $ 180 million of surplus profits. That money comes at the expense of the smaller retailers, the Kiwis, who will have to pay higher energy bills, at the expense of the planet. It is reckless and dangerous and it is about money before anything else.
“It is the first time since 2011 that a UTS has been detected. The Gentailers who are responsible for the generation and sale of energy cannot simply get away with unfair practices and market manipulation.
“This is another example of the failed market model, immediately after the failure of the Energy Club, it is time for the Government to review the market structure.”
Meridian Energy has been contacted for comment.
