The EA made the urgent amendment to the Electricity Industry Participation Code 2010 yesterday to prohibit generators from giving effect to a contract of net 150MW or more unless certain conditions are met, meaning power companies would need the authority’s approval in striking a deal that would allow the Tiwai Point smelter to stay open beyond 2024.
Meridian and Contact are at present negotiating a new contract to supply the smelter from the end of 2024 which meets that threshold.
The urgent code amendment will be in place for nine months, while a proposed permanent amendment is consulted on.
Electricity Authority general manager of market policy Andrew Doube said the EA observed last year there was the potential for electricity contracts of a certain size to have adverse impacts on other consumers.
"The authority estimated the impact of the [Tiwai] contract could potentially lead to households paying up to $200 extra on their electricity bills each year. This is because the cut-price electricity deal negotiated to keep the smelter operating could have been less than the cost of producing the electricity, effectively maintaining demand and keeping prices high in the wholesale market. It was estimated that it enabled a wealth transfer from consumers not party to the contract to generators of as much as $850 million a year.
"The authority’s focus is to protect the long-term interests of New Zealand electricity consumers.
"The urgent amendment to the code will protect consumers from the potential of financial impacts from contracts of a size that can shift market prices while a proposed permanent code amendment is consulted on," he said.
The code amendment will prohibit generators from giving effect to very large contracts that relate to the physical consumption of electricity or combinations of contracts — of net 150MW or more, unless: the buyer is able to onsell any unused electricity, the net value of the contract is positive, or the EA has provided clearance of the contract.
The move by the EA was backed by the Consumer Advocacy Council.
"We applaud the authority in sending a very clear message to the generators that they must not settle on contracts that disadvantage residential and small business consumers. These deals must always be in the long-term benefit of consumers," Consumer Advocacy Council chairwoman Deborah Hart said.
"We accept that an operation consuming so much power, 24/7, should get a discounted rate, but that rate must be fair and reasonable for all consumers and not repeat the mistakes of the past,"
While the current Tiwai Point contract is the only current arrangement in New Zealand to meet the net 150MW threshold, the EA is aware of other potential contracts linked to the physical consumption of electricity that could shift market prices.
Southland Business Chamber chief executive officer Sheree Carey said the chamber hoped negotiations for the Tiwai Smelter would continue in a positive way.
"We would like to see them here beyond 2024, which they’ve indicated is their plan now. So ideally, that would be the best for the city and for the region."
Meridian Energy Ltd chief executive Neal Barclay said the urgent amendment had been noted by Meridian.
"Meridian’s submission to the EA will aim to ensure the market continues to operate in the long-term interests of consumers. We will now take the time to work through the detail of the amendments and the consultation paper."
A Rio Tinto spokesman said it was considering the Electricity Authority’s release.
- By Ben Tomsett
