Contact Energy and Meridian Energy have been accused of extracting more than $60 million from consumers by over-charging for their electricity while spilling water from their South Island dams.
Haast Energy Trading has complained to the Electricity Authority that the two firms have breached the good conduct provisions of the industry's code by manipulating their offers to hold prices higher than they would be, given the volume of water being spilled in recent weeks.
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The specialist energy trader believes the situation has created an undesirable trading situation – a UTS – and has asked the authority to reset wholesale power prices since Nov. 10 based on an offer price at Meridian's Manapouri dam of $5 a megawatt-hour and the same figure at Contact's Clyde and Roxburgh dams.
"Our simulations show Meridian's generation business has extracted excess revenue of $38 million in the period since 10 November 2019 and Contact's by $23 million," Auckland-based Haast said in its complaint.
"We would support a sanction that not only required Contact and Meridian to pay back the excess spot prices, but also included a penalty element to send a strong message to generators that they should not use market power or engage in this type of conduct."
Haast has links to many of the country's smaller power retailers. Director Phillip Anderson is also a director of the Energy Collective, which owns Electric Kiwi.
Other firm's supporting Haast's claim include renewable retailer Ecotricity, Flick Electric, Oji Fibre Solutions, Pulse Energy and Vocus.
Both Meridian and Contact deny they have manipulated prices.
"Plant availability and transmission constraints restrict the volumes we can generate. We don't spill unless we have to and only do so when required by environmental rules or to manage our dams safely during high inflow events," a Meridian spokesperson said.
James Kilty, Contact's chief generation and development officer, said the firm was surprised by the claim, which it disagrees with.
"We spill when there is more water than we can sensibly use for generation, given the transmission constraints around getting the energy we produce out of the lower South Island.
"We also have a responsibility under our consents to manage silt build-up and we know spilling the excess water is important for the health of the river."
Neither company commented on the pricing of their generation.
Contact shares fell 0.1 percent to $7.23, trimming their gain for the past year to about 23 percent. Meridian shares fell 0.6 percent to $4.965, trimming their 12-month gain to 47 percent.
Wholesale electricity prices have been high for most of the past year due to tight gas supplies and increased coal prices.
Power prices eased late last month as heavy rain in the lower South Island caused flooding in Canterbury and pushed storage at Tekapo, Pukaki and Manapouri above their maximum operating levels. Consultancy Energy Link said South Island inflows in the four weeks ended Dec. 12 were the highest since records began in 1931. Snowpack in Meridian's Waitaki catchment is also about 27 percent above average for this time of year.
While power prices have eased, there has been no price separation between the North and South Island, or between the lower South Island and the upper South Island, as has happened in the past when water is being dumped at the major southern lakes.
Last week, Genesis Energy chief executive Marc England said there had been a structural change in the way competing generators were pricing their energy. Whereas thermal plant operators used to compete with hydro plants to get their production into the market, high coal and gas prices had now created a higher price "floor" in the market which some hydro operators were now pricing their output up to.
Haast says that when water is being spilled from a hydro scheme, the opportunity cost of that storage – by definition – should be zero.
By pricing all the output from Manapouri and the Clutha scheme at $5/MWh – allowing for some minimal operating costs – Haast calculated Meridian and Contact would have generated 109 gigawatt-hours more electricity between Nov. 10 and Dec. 9 than they had done.
That analysis suggests about 15 GWh of North Island storage was used needlessly during off-peak periods and that about 11 GWh of thermal generation at Huntly could also have been avoided.
Haast says that the trading by Contact and Meridian is "extraordinary" and continues to bring in $3 million to $4 million of additional generation revenue daily.
While it is harder in a dry-year situation to assess whether high prices really reflect how tight a market is, it says there is no uncertainty when dams are spilling.
"The water value is clearly zero. Offer prices that don't reflect the zero water value are a clear mis-use of market power."
In mid-2016, during high winter evening demand, Meridian prompted a similar complaint from Electric Kiwi by raising the pricing on some of its South Island generation to stop prices on the two islands separating and leaving the firm's North Island retail business exposed to very high power prices.
The authority ruled that was not a UTS, but an investigation was initiated into the standard of Meridian's trading conduct. No formal complaint was laid by the authority but a warning letter was sent.