Meridian 'extortion' claim to make Contact in court

By Ray Lilley

Friday 7th July 2000

State-owned power company Meridian Energy is expected to launch legal action shortly in an attempt to compel listed rival Contact to abide by a 1996 deed guaranteeing bulk power to the Comalco smelter.

Meridian will not disclose details of its case, but Contact told The National Business Review this week it had been notified by Meridian "they will test their interpretation of the Comalco deed in court."

Meridian's action follows Contact's spiking spot electricity prices by 18 times during a planned shutdown of Meridian's Manapouri station as part of a tailrace tunnel upgrade.

The price rose from $30 to $540 per mWh during the 25-hour shutdown and Meridian said it was forced to cut short by a full day.

"We think it [the deed] is clear, but welcome the opportunity for a court to rule on the issue," Contact's communications manager Bruce Thompson wrote in an email

He declined comment on figures showing the May shutdown price was a massive hike compared with other shutdowns of Manapouri generation since the feed was signed.

Research of pricing during Comalco's five shutdowns since the 1996 deed was implemented shows the May 2000 price spike was massive compared with the modest changes on the four previous occasions. One of those saw the spot price charged actually fall $16 mWh during the eight-hour shutdown.

Meridian blasted the Contact pricing as "extortion," warning it would prevent completion of the tailrace upgrade, planned to increase Manapouri's output 15%.

Contact rejected the Meridian claims, saying "the market sets the price," and Contact had fulfilled its deed obligations to supply Comalco during the downtime.

Comalco was forced to trim production at the Tiwai smelter as the price spiked higher.

Mr Thompson said at the same time that Contact was tied to supplying Comalco, it faced spot prices of up to $800 kWh on the East Coast of the North Island to keep up supply to customers there during a four-day power grid restriction.

"When you are in the market you have got to play by market rules.

"On the East Coast we were a net buyer. In the Deep South we were a net seller," he said in response to Meridian.

"New Zealand's largest hydro station was right out. We had Clutha and Clyde in operation. We did our bit."

Comalco had merely "reacted commercially to the market," Mr Thompson said.

Meridian chief executive Keith Turner said the East Coast situation had no bearing on either the supply deed or the price-setting for the smelter.

"We think they are obliged to honour [the deed] and believe they didn't honour it. We are looking to the deed for relief."

The shutdown had been a "notified event under the deed," which meant Contact had months of advance warning.

Dr Turner said Contact was claiming the pricing precedent related to a time when Manapouri had low water supplies in the mid-1990s, but there was "no comparison" between the two events.

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