Contact caves in on price spike scrap

By Ray Lilley

Friday 20th October 2000

Sign of power

In a sudden reversal of position Contact Energy has refunded $3 million to rival Meridian Energy over "extortionate" charges imposed during shutdowns of the Manapouri power station earlier this year.

The result is Meridian's $200 million upgrade of Manapouri's power output is to go ahead in early December, without facing predatory pricing from Contact during the three-week shutdown.

During a 25-hour outage at Manapouri in May, Contact bumped electricity spot prices to the Tiwai aluminium smelter 18 times higher than their level before the shutdown, from $30 a MWh to $540 a MWh.

In an out-of-court settlement over the pricing row, which Meridian claimed had breached a special 1996 supply deed, Meridian withdrew its High Court action against Contact.

In return, Contact accepted it had breached the deed, and is to pay back the $3.1 million of above-rate charges. Meridian sought the payment as damages.

Under a signed gag agreement, neither party will comment on the settlement.

The action was heard in Auckland last month, and the judge's reserve decision had been completed but has not been delivered. That may have added to the pressure for Contact to reach a settlement of the scrap.

Contact is said to be "hugely embarrassed" by the whole issue, after earlier claiming the massive pricing spike was simply the market in operation.

It insisted its action did not breach the deed for supplying backup power to the aluminium smelter. Under the deed, Contact must supply the Tiwai smelter's continuous power requirements when Manapouri is out of operation.

Energy Minister Pete Hodgson has labelled Contact's behaviour "rank opportunism."

An indication Meridian had won the legal wrangle came last weekend when a 10-hour closedown of Manapouri saw spot prices for Contact's power move only marginally.

Figures from energy market operator M-co show average prices over the shut-down period were lower for Tiwai power than for power at the other key supply points, Benmore in North Otago and Haywards in Wellington.

Meridian plans up to nine more short outages before the December close-down so divers can fix brackets into the second tailrace tunnel walls.

The settlement indicates these should be carried out with only minor movement in spot market prices for Tiwai power.

The next Manapouri outage is planned to begin at midnight tonight and last till 7am tomorrow. Three more eight-hour shutdowns will occur over following days.

The upgrade, which will add a second tailrace tunnel to Manapouri, lifting its power output 15 percent, will close the station for 21 days from December 2.

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