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Call for investigation into electricity generators practices

Entrust calls on Commerce Commission to investigate potential restrictive trade practices and collusion by electricity generators

Entrust has called on the Commerce Commission to investigate Meridian, Genesis Energy, Mercury and Contact Energy’s arrangements to supply Tiwai Aluminium Smelter with artificially low-cost electricity at the expense of consumers across the country.

Entrust Chairman, William Cairns said he was very concerned to hear Contact’s chief executive, Dennis Barnes, advising the NZX recently that Tiwai Aluminium Smelter has paid $9 million less than Contact would have received from selling the electricity on the open market in the last financial year.

Tiwai has a contract for 572 megawatts of power with Meridian Energy, with Contact Energy subcontracting to provide 80 megawatts of that. The indications from Contact are that the contracted price only covers operating and fuel costs.

Contact advised the NZX the benefit of the arrangements “is the market-wide effect of the smelter staying”. In May 2018, Forsyth Barr broker Damian Foster said, when referring to the Tiwai arrangements, “This is clearly a positive for the market. It’s not just tightening up the market a little further, but should quash any lingering talk that NZAS is about to close.”

Mr Cairns said it was extremely concerning the incumbent generators were being so brazen in their comments about the impact these deals are having on the market, and appear to be working together to prevent a 14% over supply in electricity which would result in stronger competition and a reduction in electricity prices to all New Zealanders.

“Recently in the first Retail Pricing Enquiry report, it was identified that households are paying nearly 80% more for power than in 1990 and vulnerable customers are the ones most impacted. Yet this report did not mention anywhere the issue of the Tiwai smelter and the sweetheart deal that is effectively ripping off average New Zealanders.

”MBIE reported in August 2016 that total electricity demand would return to current levels until the late 2020’s if the smelter closed in 2018. In a 2013 Treasury report, it was said that such an exit “would lead to wholesale electricity prices roughly 10% lower than the reference scenario over the 2015-2030 period.

“Not only are residential customers missing out on cheaper, more affordable electricity supply, but businesses from Invercargill, to South Auckland, to Kaitaia could be benefiting from more competitive, lower cost, electricity. This would promote job growth and lower cost goods and services in all sectors and across all regions of the country.

“The undeniable effect of the arrangements has been to restrict supply of electricity available in the market and limit independent retail competition. A Commerce Commission investigation is needed to help clear up whether there has been collusion or other anti-competitive behaviour by the incumbent electricity generators.

“This is corporate welfare at its most cynical. Tiwai Aluminium Smelter gets a sweetheart deal and Contact and Meridian are able to keep electricity prices on the spot market artificially high, stifling competition.

“Consumers and businesses all over New Zealand should be benefiting from low cost generation prices, not just Tiwai.

“Tiwai Aluminium Smelter is 100% foreign-owned so the benefits of these subsidies are going straight off-shore at the expense of hard-working New Zealanders,” he said.

ENDS

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