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Electricity Authority rejects Electric Kiwi claim of Meridian market manipulation

Wednesday 6th July 2016

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The Electricity Authority has rejected the call from minnow power retailer Electric Kiwi for an investigation into the actions of Meridian Energy on June 2 when wholesale electricity prices spiked to more than $4,000 per megawatt hour.

However, it will conduct a 'market performance review' to "consider the performance of the electricity market and the conduct of all participants. In particular, we need to examine whether the market performed in a manner consistent with the Authority’s statutory objective of promoting competition, reliability and efficiency for the long-term benefit of consumers".

While Electric Kiwi's approximately 3,000 customers were shielded from the price spike, caused by an unusual combination of factors on a cold, windless day in the North Island, the company brought the claim because it believed Meridian, the country's largest electricity generator, had manipulated market conditions to suit its own portfolio of South Island hydro and North Island wind assets.

However, the EA has requested a "market performance review' even though the June 2 situation did not constitute an 'undesirable trading situation'.

"The review will look at trading on 2 June, as well as other similar events, and how the wholesale electricity market performed in regard to those events," Carl Hansen, chief executive at the regulatory agency, said. "The board reviewed a significant amount of analysis about the situation on 2 June. While this event is not a UTS, the investigation has highlighted a number of issues that need further analysis and consideration.

"I would like to thank Electric Kiwi for proactively escalating this matter."

Meridian's chief executive, Mark Binns, welcomed the finding that "Meridian worked within the market rules and behaved appropriately".

“Price spikes are a normal function of any working wholesale market here and overseas. Spikes occur to signal scarcity to market participants in periods of high demand, such as cold winter evenings or at times when the country has low rainfall.

“While market prices have been relatively benign for quite some time, electricity markets will always experience periods of volatility. The retirement of over 500 Megawatts of gas-powered generation in the North Island over the last nine months could well lead to more frequent periods of volatility during high demand periods or times of drought when there is less energy available from hydro sources.”

The EA's statement also noted that "occasional very high spot market prices are desirable in New Zealand to provide a reliable and secure electricity supply. This is because ‘back-up’ generation plants operate very little of the time and so they need to earn high prices when they operate to recover their costs".

The country's fastest-growing electricity retailer, Flick Electric, with more than 10,000 customers did not seek a UTS investigation, despite its point of difference being that its customers pay the 'spot' rate for wholesale electricity and were exposed to the very high prices that briefly occurred on June 2, when prices went as high as $4,000 per MWh, compared to prices that normally fluctuate between around $30 and $80, depending on location, time of day, national levels of demand and availability of renewable electricity generation plant.

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