MERIDIAN IDENTIFIED AS CRISIS CULPRIT
19 February 2009NICK SMITH
Government-owned Meridian Energy continued to sell cheap hydro energy leading up to and during the winter power crisis, despite warnings from the Electricity Commission about national security of supply.
A report by two independent electricity experts shows that by April 24, 2008, South Island lake levels were heading towards emergency minimum capacity - called the "min-zone" - with no prospect of replenishing rain and winter high demand just round the corner.
But when the commission sought "discussions" with Meridian it was rebuffed, the review says, with its concerns about the balance of hydro and thermal energy being used interpreted as "interference".
"We understand the Electricity Commission again formed the view that offered thermal generation was not being fully utilised," wrote the report authors, former Contact Energy chief executive David Hunt and economist John Isles, of the worsening crisis in May.
"It reinitiated discussions with [Meridian] on the issue. The exchange appears to have been tense, with [Meridian] feeling that it was under pressure to revise its offer strategy."
Meridian is not named in the report but it has since been outed by commission chairman David Caygill and other generator-retailers for continuing to undercut pricier thermal generation during the crisis, despite falling lake levels.
Richard Gordon, a spokesman for Genesis Energy, also government- owned, said his company had "a Manapouri Lake-worth of thermal - hundreds and hundreds of kilowatt- hours" - offered to the market but it was unused during the crisis.
"If it's priced underneath you, you don't get used," said Gordon. "Our view is that certain generators were using their hydro resources knowing that the risks weren't fully sheeted home."
Although Meridian did not act illegally, its actions were "contrary to the expectation of supplier behaviour set out in the Electricity Commission's security policies", said Hunt and Isles.
Contact Energy spokesman Jonathan Hill would not comment directly "on our competitor's strategy", but said the generator broadly supported the independent review's recommendations.
Hunt and Isles say generators should bear the full cost of their decision-making, rather than relying on the commission-controlled entry of the Whirinaki thermal station, which capped its prices during the crisis, to manage dry-year constraints.
As Gordon said: "[Meridian] had Whirinaki and the Electricity Commission came to their rescue. People made early decisions and weren't fully accountable for those decisions - it didn't hit them in the pocket."
Meridian spokeswoman Claire Shaw would not respond directly to questions about the generator's conduct before and during the crisis. Energy Minister Gerry Brownlee also declined to comment.
The commission is seeking industry submissions on the Hunt/Isles report. Submissions are due by Friday this week, after which the commission will issue a draft proposal. Shaw said Meridian would respond to the commission before the deadline.
"The focus of that submission supports the winter review document by looking to the recommendations made," she said. "I think the focus of the submission is looking at what we can do in the future to ensure the recommendations are met, as ensuring policy best supports future winter situations - such as last year - is the key focus for Meridian."
Hill said the winter crisis created, in effect, two energy markets - cheap electricity in the North Island and high prices in the south.
While the recommendations of Hunt and Isles were constructive, Hill said the issue of transmission constraints because of the ailing inter- island high-voltage direct current link was critical.
(c) 2009 The Independent Business Weekly
The Independent Financial Review
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