6 November 2020
Electricity Authority on track to hold Meridian to account for market manipulation that drove up prices
Flick Electric Chief Executive, Steve O’Connor, says a new consultation paper is reassurance that the Electricity Authority (the Authority) appears to be continuing on a path to hold Meridian accountable for its actions manipulating the market last year.
The new consultation paper, released today, calls for submissions on technical aspects of the investigation into the complaint made by 7 independent electricity retailers that Meridian and Contact caused an ‘undesirable trading situation’ (UTS) and pushed prices up on the spot market, when they unnecessarily spilt water from their dams.
In its preliminary decision earlier this year, the Authority found that Meridian’s behaviour had led to more expensive generation running in the North Island, at a time when there was excess fuel in the south. It estimated this could have led to electricity retailers paying about $80 million too much to buy power off the wholesale market.
“Today’s update is a positive and welcome step. It’s reassuring to see the Authority say in this paper that they want to get the UTS outcome right. Confirming that Meridian’s behavior led to higher spot market prices would be one step towards fixing the wholesale market, where a lack of competition and higher energy costs is ultimately driving up prices for consumers,” says Steve.
The Authority has also now suggested that the UTS period extended for around ten extra days, from 3 to 27 December rather than rather than 3 to 18 December.
“The group of independents claimed that the UTS went on for longer than this but the extended timeframe is an improvement at least. Even ten extra days of this behaviour by Meridian could mean millions of dollars of excess cost to smaller retailers, which sadly potentially flows on to consumers at home.”
“Meridian shouldn’t be allowed to get away with what we view as anti-competitive behaviour that makes it harder for everyday New Zealanders to pay their power bills,” says Steve.
The consultation paper outlines a series of factors that it suggests came together in the market in December to result in a “lack of competitive pressure which has then resulted in unnecessary spilling”.
The Authority has analysed data from 2011 to 2019 and compared market outcomes with the December 2019 period. Some of the results so starkly showed reduced competition that the regulator described the actual outcome as 'incongruous'.
“We commend the Authority on its thorough analysis that has concluded that there was reduced competition during the period, which did result in unusual outcomes that were not what should be expected. They have reconfirmed the intent to declare a UTS,” says Steve.
“However, the fact that the market is set up in a way that even allows this sort of scenario to occur, and which incentivises manipulation of the market to make excess profits, points to the urgent need for wider change to the broken electricity market in New Zealand.”
Work is underway in parallel on what remedial action or penalties could be taken if the UTS is confirmed.
“The Authority’s decision on this UTS and any remedial action that follows will set a precedent and could help stop this behaviour recurring. It will tell us whether misuse of market power and market manipulation are agreed to be unacceptable by the Authority, and it will tell us whether we can have confidence in the Authority to ensure the integrity of our wholesale market. I hope the answer to both is yes.”
Steve says the final decision on this UTS in December provides the perfect opportunity for the Authority to put their words into action, especially as we move towards a future that aims to do better by our planet.