Reforms considered

Energy Minister Megan Woods is not ruling out making ‘‘structural changes’’ to the electricity industry and has asked officials to investigate options, in the wake of a candid report by the Electricity Authority.

Woods has effectively reopened the 2019 Electricity Price Review by saying she wants to see if some changes to the market that the ministerial review rejected might need to be implemented.

The authority estimated yesterday that households were paying an extra $200 a year for electricity on average because Meridian and Contact had an incentive to provide cheap electricity to the Tiwai Point aluminium smelter.

The authority’s long-awaited review of the wholesale electricity market focused heavily on the way the smelter’s power deal might be distorting prices.

But chief executive James Stevenson-Wallace also said power firms could have an incentive to delay investment in new generation to maximise the return on their existing portfolios ‘‘as part of a rational commercial strategy’’.

The prices at which some generators had offered to supply power since 2018 had risen and in some cases did not reflect underlying supply and demand conditions, the authority found. ‘‘There is some evidence of increased incentive for generators to structure offers in a way that keeps prices high,’’ Stevenson-Wallace said.

Woods had downplayed the likelihood of major changes to the electricity market in the short term in April.

But she said in the wake of the Electricity Authority’s report that she had asked officials to investigate options that were proposed but not recommended by the Electricity Price Review in 2019 ‘‘to see if they should be revisited’’.

The options rejected by the latter review included splitting gentailers Meridian, Genesis and Mercury into separate generation and retail businesses.

Woods said she ‘‘like many New Zealanders’’ was disappointed that the initial findings of the authority’s review appeared to show households and businesses ‘‘subsidising a multinational to the tune of $200 per household’’.

‘‘I welcome the consultation the EA has started, but I am not ruling out looking at what interventions might be required to ensure this can’t happen again, including the possibility of structural change in the sector,’’ she said.

Woods said she was particularly interested in ensuring that electricity consumers were being treated fairly, what distortions there might be in the market, and whether there was ‘‘a handbrake on new investment in renewable energy’’.

Stevenson-Wallace said the EA’s review was prompted by ‘‘elevated electricity prices’’ over 21⁄2 years.

The authority said it was concerned Meridian and Contact were in effect subsidising the smelter to the tune of $500 million over four years by selling it power at a cost of between 3 and 4 cents a kilowatt-hour that could have been more efficiently used elsewhere.

The cost of that subsidy was offset for them by the fact that demand from the smelter increased prices overall elsewhere by an estimated $850m a year, he said.

‘Generators are incentivised to subsidise the cost of electricity at the smelter through the Tiwai contracts. The cost of that support is more than offset by the higher prices paid by all other consumers for the increase in total demand for electricity.’’

The authority proposed a variety of responses, including requiring generators to have large power contracts approved by the authority in future.

‘‘I welcome the consultation the EA has started.’’

Megan Woods

Energy Minister