Energy Sector – Electric Kiwi welcomes the EA actions against Meridian and Contact Energy but has concerns about industry future

An 18 month investigation into electricity market failure ended today, and according to independent retailer Electric Kiwi the fundamental flaws in the market have not been resolved.

Back in December 2019 a number of smaller retailers, including Electric Kiwi, raised a formal complaint with the Electricity Authority. The claim was that a UTS (Undesirable Trading Situation) had occurred. The complaint asserted that more than $60 million of excess revenue had been earned by operating hydro dams below capacity despite abundant water. Essentially spilling water to drive up prices instead of generating.

A year later, in December 2020 the Authority found that a UTS did occur, but the ruled that while prices would be reset no penalties would be issued. But changes were made to the trading conduct rules as a result.

Electric Kiwi welcomes the EA action to reset market prices after 18 months of deliberation, but has serious concerns about the lack of any deterrent despite a finding of market failure.

Electric Kiwi Chief Executive Luke Blincoe says “Resetting prices returns the market outcomes closer to reality, but the absence of any penalty element fails to deter future abuse of market power. While the 2019 UTS was caused by Meridian, the lack of deterrence has emboldened other gentailers to abuse market power, as we alleged Genesis did in the UTS we lodged over last week’s blackouts”.

Electric Kiwi and Haast Energy Trading last week issued a new UTS after rolling blackouts on August 9th after insufficient generation was again offered to the market.

“This is the same issue all over again, the big guys treat national resources as if they are there only for their commercial gain” says Blincoe.

“Our concern is that the recent blackouts were another example of withholding  generation capacity, and the weak response underlines the need for structural change. The 2019 UTS clearly didn’t deter this behaviour, so without structural change we can expect more abuse of market power  to the detriment of Kiwi consumers. ”

“We have seen market power being abused to elevate wholesale prices over an extended period of time, and consumers are paying for it with high and rising retail prices. Without intervention we expect to see the trend continue to the detriment of consumers.”