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Meridian hit by $4 million power play

By Ray Lilley

Friday 26th May 2000

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MANAPOURI: Expansion under threat
Contact Energy has been accused of price-gouging $4 million out of state-owned Meridian Energy in just 25 hours during a shutdown of the Manapouri power station last weekend.

Manapouri owner Meridian claims it was forced to abort critical expansion work halfway through due to Contact charging it 18 times the spot rate for bulk electric power.

Meridian had no choice but to buy the power at any price to keep supplying its customer, aluminium giant Comalco.

The incident also forced the Comalco smelter to cut back production as power prices soared several hundred per cent.

Meridian chief executive Keith Turner warned the $200 million second tailrace-tunnel project to increase Manapouri's output 15% "won't be done" if similar price-gouging occurs from Contact Energy.

Contact Energy created a pricing spike as it made the most of its temporary monopoly position.

Prices lifted from an average $30 per MWh to around $540 per MEh as Contact manipulated the market, Meridian claimed.

"[Contact] raised prices to extortionate levels once we got into the planned shutdown," Dr Turner said.

Comalco New Zealand managing director Kerry McDonald confirmed the Tiwai aluminium smelter was forced to cut back production as the power price ramped upward.

It's understood to be the first big "power play" of its type in the recently created open electricity market. It came as Meridian carried out a long-planned 48-hour shutdown to prepare for the cut-in of the second tailrace tunnel in June next year.

Contact said it was required to fulfil its obligations as required by a special notice from transmission company Transpower.

"The market sets the price," Contact communications manager Bruce Thompson said.

Both Meridian and Comalco believe Contact Energy breached the 1996 deed signed to cover such supply contingencies in the south when Contact was spun off from ECNZ.

Senior government finance, SOE and energy ministers have been briefed by Meridian on the disrupted market and work programme.

"We went into the weekend expecting that Contact would comply with the deed and meet its obligations to cover for Manapouri's downtime, Dr Turner said.

But the shutdown to carry out $3.5 million of planned work cost Meridian nearly $4 million in power charges alone from Contact for just 25 hours of outage, instead of the "hundreds of thousands of dollars at normal spot prices," said Mr Turner.

Contact also quoted spot prices of more than $500 a Mwh for the Sunday, the second day of the planned shutdown. That would have driven the power bill up to about $8 million for the 48-hour project.

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