A multi-million dollar settlement is looming among power companies after the sector regulator confirmed consumers paid $70 million more than they needed to a year ago.
The Electricity Authority has confirmed a preliminary mid-year decision that an undesirable trading situation (UTS) occurred for three weeks in December 2019, when Meridian and Contact spilled excess water from South Island hydro dams causing a spike in wholesale prices.
A group of small electricity retailers and users complained about the spike in prices, which they had to pass on to consumers.
The authority's chief executive James Stevenson-Wallace said the market had acted in an unusual and uncompetitive way.
"We experienced an extreme weather event in the South Island with severe rainfall and lake levels over and above the maximum. Generators were faced with record-level inflows, resource and operational constraints. At the same time North Island generation was aiming to conserve fuel ahead of an impending gas and HVDC (Cook Strait cable) outage."
He said the situation was unusual and unpredictable, but Meridian could have generated 30 percent more power rather than spill the water.
"What we didn't see is a normal market response - lower electricity spot prices driven by lower offers from those generators spilling excess water.
"There was a lack of competitive pressure which meant prices remained relatively high despite an abundant supply of water and no increased demand during the period. Water was wasted when it could have been used to generate power," Stevenson-Wallace said.
He said the magnitude and duration of the event was such that confidence in the electricity market may have been threatened.
The authority will now look at potential remedies, which would include resetting prices for the three week period, which could result in refunds to retailers who paid too much.
Market reform needed
One of the complainants, Flick Electric, said the decision showed the power market was uncompetitive, open to manipulation, and needed reform.
"The electricity market is fundamentally flawed, because it allows gentailers, those who generate and sell power, to manipulate the market in the first place," chief executive Steve O'Connor said.
"The EA (Electricity Authority) needs to focus on making sure long-term structural change, ideally vertical separation of gentailers so they can't increase wholesale prices and use market power to stifle competition."
He said the authority's decision did not blame any one company, but Meridian needed to be "more than a slap on the wrist with a wet bus ticket".
O'Connor said he expected affected retailers would wait to see what the Electricity Authority decided to do about remedies before looking at possible refunds to retail customers.
Meridian Energy said it was "disappointed" that the Electricity Authority had decided the price spike and the causes for it were an undesirable trading situation.
The company said it was unable to do an interview but would take time to review the detail of the decision.
Energy Minister Megan Woods said consumers relied on a competitive market to deliver fair prices and she would work to ensure this did not happen again.
"As the Minister for Energy and Resources it is my priority to ensure that New Zealanders reap the benefit of the cheapest electricity we produce; renewable energy.
"I will work with the EA to make certain we have all the tools that are required so situations like this do not occur in the future", Woods said.