The electricity market regulator is alleging Meridian let thousands of tonnes of water through its dams in order to keep prices high, Marc Daalder reports
In a preliminary decision, the Electricity Authority (EA) has found Meridian spilled thousands of tonnes of water through its hydroelectric generators in order to keep prices artificially high and avoid constraining the cord that connects the South Island to the North Island.
Heavy rainfall in the South Island in November and December forced generators like Meridian and Contact to spill some water through their dams without generating electricity. This is normal, the regulator’s chief executive James Stevenson-Wallace said.
However, these types of events are normally accompanied by a decrease in the price of power.
“What we didn’t see and would have expected was lower electricity spot prices driven by lower offers from those generators spilling excess water,” Stevenson-Wallace said.
“The prices remained relatively high despite an abundant supply of water and no increased demand during the period.”
On December 12, while the situation was still ongoing, a coalition of independent electricity retailers complained to the EA that Meridian and Contact were perpetuating an Undesirable Trading Situation (UTS) – the technical term for when the wholesale market is not operating as it should.
“It’s unusual behaviour. It appears that it’s designed to maintain high wholesale prices,” Flick Electric’s CEO Steve O’Connor said at the time.
In its preliminary decision released on Tuesday, the EA has cleared Contact and fellow generator Genesis of any wrongdoing regarding the spilling, but found Meridian responsible for “unnecessary spill”.
“Viewed in isolation, the Authority’s preliminary view is that the offering behaviour at Genesis’ and Contact’s South Island stations did not cause outcomes that were significant enough to constitute a UTS,” the regulator wrote.
In total, the regulator found 41 gigawatt hours of electricity was spilled during the relevant period in December. That’s enough to power nearly 6000 New Zealand homes for a year or send an electric vehicle on a non-stop, 194 million kilometre road trip.
The decreased power in the market also led to increased use of North Island fossil fuel generators, the EA said. Although a specific number wasn’t produced, Electric Kiwi CEO Luke Blincoe estimated the added North Island generation would have produced about 6000 tonnes of CO2.
Then there’s the money. For the 15 days the EA is looking at, between December 3 and 18, “there was an $80m impact on the spot market”.
Blincoe wants to see Meridian pay that money back – and more. The Commerce Act could call for a fee of three times the commercial gain reaped by Meridian, so something on the order of $240 million sounds fair to him.
For its part, Meridian said only that it was reviewing the EA’s decision and would make a submission in the coming weeks.
“In December last year, Meridian experienced extremely high inflows. Meridian was required to manage these exceptional weather events in real time,” Guy Waipara, the energy company’s acting chief executive, said in a statement.
“For the first time in Meridian’s history, the company spilled from all its hydro structures, with significant inflows to the Waitaki catchment and both Lake Te Anau and Lake Manapōuri recording the second highest lake levels on record.”
Energy Minister Megan Woods said she was looking forward to reviewing the decision.
“This is a really important mechanism, the ability for the EA to look at these situations when people have a concern about them. One of the things that we do want to make sure is that we’ve got a well-functioning wholesale market that is actually allowing New Zealanders to enjoy the benefit of the fact that we have incredibly high levels of renewables, which is of course the cheapest electricity that we can produce,” she said.
Blincoe says the EA is doing what it is supposed to, but the broader situation indicates the market is still broken.
“The market is broken. The EA wouldn’t have been involved if the complainants hadn’t spent an immense amount of time and resource formulating this complaint,” he said.
Stevenson-Wallace, in his remarks, insisted the market was functioning.
“The market is performing well and doing what it was intended to do but there is always room for improvement – whether it be in the design of the market or on the rules managing participant behaviour,” he said.
“There’s a lot at stake and we want to make sure the market operates in the best interests of New Zealand consumers.”