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Minister slams Contact Energy for opportunism

By Ray Lilley

Friday 2nd June 2000

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Electricity market regulator M-co has launched a formal investigation into the Contact Energy power play which saw it charge SOE Meridian Energy $4 million for 25 hours' back-up power supply to the Comalco smelter.

Energy minister Pete Hodgson has labelled Contact's behaviour during the recent Manapouri shutdown "rank opportunism," after it spiked prices for supplying the Tiwai smelter by several hundred percent. Mr Hodgson said it was easy to dismiss Contact's action as "the market in operation but the national interest is not maximised by such cavalier behaviour."

M-co's internal Surveillance and Compliance group has begun sifting through details of the event after a formal complaint that Contact breached market rules by charging Meridian Energy 18 times the going rate while its Manapouri generation plant was out of action (NBR, May 26).

Sources confirmed the investigation was under way, although M-co chief executive Philip Bradley declined to comment.

"We won't talk about what is or is not under investigation about what happens in the market."

If investigators find a case to answer, M-co's five-member market surveillance committee, headed by retired Court of Appeal judge Sir Duncan McMullen, is expected to hear the full case by mid-June. Found guilty, Contact could face anything from a slap on the wrist to a substantial fine and a compensation order from the committee.

The self-regulating electricity market has extensive powers for dealing with bad behaviour. Recently Transpower was fined and ordered to pay Contact more than $100,000 in compensation for a breach of market operating rules. Last week Meridian Energy cried foul after it was forced to abort its planned 48-hour closedown of Manapouri to carry out preparatory work to connect the second tailrace tunnel into the system.

The $3.5 million weekend project was halted while unfinished as power prices from Contact sky-rocketed.

The spot price rise from $30Kwh to $540Kwh also caused Comalco to cut back production at the Tiwai smelter.

Meridian labelled the price spike "extortion." It claimed Contact had breached the deed signed in 1996 requiring Contact to supply back-up power to Comalco during any shutdown at Manapouri.

Meridian, which briefed senior ministers on the issue, has declined to say whether separate legal action would be launched against Contact.

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

Mr Hodgson said Contact had operated the same way before, hitting Auckland power retailers with severe price rises when Contact took advantage of the near shutdown of the Huntly power station during high water temperatures in the Waikato River.

This contrasted with the lack of impact on wholesale power prices during the three-day shutdown of the Maui gas field. "It seems other generators, faced with the opportunity to exploit such shutdowns, do not necessarily behave as Contact does," the minister said.

Pete Hodgson

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