Two major power companies face hefty bills and some consumers are in line for refunds after the electricity sector regulator drafted a financial settlement for a spike in wholesale prices in late 2019.
A dam spilling water (file image). Photo: 123RF
The Electricity Authority last year ruled an "undesirable trading situation" (UTS) occurred when Meridian and Contact spilled excess water from South Island hydro dams causing a spike in wholesale prices which it estimated cost users about $70 million.
The authority proposed to reset prices for the three week period, which would cost Meridian $11.3m, and Contact $4.9m. A group of smaller generators which made windfall gains from the spike would pay lesser amounts.
Authority chief executive James Stevenson-Wallace said: "There is no perfect solution - some of the consequences of the UTS cannot be undone. For example, we can't un-spill water".
The authority wanted to reset spot electricity prices for the period 3 to 27 December 2019, by capping prices the price at $13.70/MWh (megawatthour) for nine South Island generating stations on the Clutha and Waitaki rivers, he said.
"Based on this price, we've estimated the reduced cost of electricity is about $80m for the December 2019 UTS period."
"We consider a capped offer ... will result in average final prices that are broadly consistent with similar conditions in the past - noting the exceptional events of December 2019 were rare and the confluence of factors unprecedented."
The main beneficiary of resetting prices would be the Tiwai Point aluminium smelter, which would be refunded $9.9m, and New Zealand Steel, which operates the Glenbrook mill, would get $2.3m.
A group of small retail power companies, which offer wholesale pricing to their consumers, would be in line for refunds of several hundreds of thousands of dollars.
Meridian said it was "digesting" the report.
"From Meridian's initial review, the authority's proposals seem broadly consistent with its previous findings and with Meridian's estimates of financial impacts."
However, it said the $11.3m charge it faced was a gross figure and did not take account of resettlement of hedge contracts, used to offset price volatility.
"Once those contracts are accounted for, Meridian expects the financial impact would be in line with what Meridian has already indicated publicly - around $2 million," it said.
One of the small retail power companies, which complained about the prices, Electric Kiwi said Meridian was getting off lightly.
Chief executive Luke Blincoe said the suggested reset spot price was probably double what it should be and Meridian should compensate other generators which had to bear the prices and had no choice but to pass it on to their consumers.
"The other big thing we can't forget is that none of this undoes the carbon impact of this event and Meridian needs to answer the question what they're going to do about the carbon impact."
The reduced hydro generation forced the use of more expensive and carbon intensive thermal generation.
Electric Kiwi would receive about $592,000 in compensation, which Blincoe said would offset the hedging or insurance costs it had incurred.
He said the wholesale power market was still "broken" and he remained convinced generators should not also be retailers.
Extra charges and refunds would be calculated and processed through the electricity market's settlement system.
The authority said it would take submissions on the draft ruling through to the end of April.