Price gouging court action threatens $200m project

By Ray Lilley

Friday 28th July 2000

The country's biggest energy efficiency project, the $200 million upgrade to boost the output of Manapouri power station, is under threat as generators scrap over power pricing.

Manapouri's owner, Meridian Energy, has filed a High Court action against rival generator Contact Energy, seeking an urgent ruling that Contact breached the Commerce Act by using its dominant market position to charge predatory prices.

Meridian chief executive Keith Turner, in an affidavit supporting the claim, warned the company would be forced to abandon the $200 million dollar upgrade of Manapouri if the same "extortionate" pricing is charged by Contact during a 21-day shutdown planned for early December.

State-owned Meridian is also asking for a ruling that Contact breached a contract deed which requires it to supply power at market rates to the Tiwai aluminium smelter during generation outages at Meridian's Manapouri power station.

It is seeking $3.1 million in damages, the amount it claims Contact overcharged for back-up power in May when Manapouri was shut down for 25 hours.

The action comes as Meridian Energy seeks to confirm the Tiwai smelter backup supply deed was breached by Contact during the shutdown, when prices for power from Contact's Clutha dams rocketed to 18 times the average spot price for the 25 hours.

According to Dr Turner's affidavit, "Meridian will have to think seriously about cancelling the 2MTT [second tailrace tunnel] project" if Contact can unilaterally set prices during Manapouri outages. The project will become financially unviable if Contact repeats its behaviour of 20 May 2000 during the 21-day shutdown."

Meridian would be exposed to "potentially limitless" prices unless the court ruled the 1996 deed "requires Contact to provide backup power at prevailing South Island market rates."

The tailrace project, dubbed the largest energy efficiency project undertaken in New Zealand, will lift the output capacity of Manapouri by 185MW, enough to meet the needs of 64,000 households.

Dr Turner said Contact chief executive Paul Anthony confirmed on May 19 this year the electricity market would "determine the applicable price during the outage." But Mr Anthony denied the terms of the 1996 deed applied to the situation.

During Manapouri's shutdown for tailrace upgrade work Contact used its ability as a price-setter in the south to charge extortionate prices for electricity for the Tiwai smelter, Dr Turner said.

One senior Contact executive is reported to have told Meridian staffers their "eyes will water" over the price levels it will charge during the next Manapouri shutdown.

Contact chief executive Paul Anthony will leave in October to work for British Gas International.

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