According to the Electricity Authority, a deal to keep the Tiwai Point aluminium smelter operating may mean your household is paying $200 a year more for electricity. Photo / supplied
According to the Electricity Authority, a deal to keep the Tiwai Point aluminium smelter operating may mean your household is paying $200 a year more for electricity. Photo / supplied
If you are looking to shift blame to anybody, the aluminium smelter in Southland is a pretty safe target.
Foreign-owned by a global mining giant, and on record as operating on a polluted site, the smelter at Tiwai Pt has won a special place in New Zealand's political landscapeby using threats that it could close to extract cash from the Government and cheap electricity from its suppliers.
So it would seem to be a safe bet for the Electricity Authority (EA), which for years has defended the makeup of New Zealand's wholesale electricity market, to seek to push whatever failures of the electricity market onto the smelter, New Zealand's largest electricity user.
To the surprise of many in the industry, Wednesday's release of the EA's report into competition in the wholesale electricity market did just that.
The regulator claimed a deal between the smelter's owners and Meridian Energy in January, keeping the smelter open for at least four years, amounted to a $500 million subsidy which could be pushing up the electricity bill of every New Zealand household by $200.
Politically, this is the perfect response. Point the finger of blame at a convenient bogeyman for a problem that you can't fix, for a major cost to the average Kiwi family. It creates headlines without requiring action.
Energy Minister Megan Woods has been facing increasing pressure over the functioning of the wholesale electricity market this year, as major industrial users warned that thousands of jobs are at risk because of high wholesale prices.
The report puts no pressure on the government to do anything at all. Woods responded to yesterday's report by expressing disappointment at the idea of a subsidy to Rio Tinto, while making vague promises of possible reform.
Rio Tinto's behaviour towards the New Zealand government and the Southland community has, at times, been reprehensible. But the way the EA characterised its effect on the New Zealand electricity market since January is bizarre.
Energy Minister Megan Woods. Photo / Mark Mitchell
Whatever price Rio Tinto, the smelter's majority owner, extracted from Meridian might be frustrating for other users, but it is taking no more or less electricity than it was before.
Even if the smelter did close, it is not entirely clear that electricity bills would fall outside Otago and Southland.
Most of the electricity provided to the smelter would be marooned in the lower South Island if the smelter was to close because of transmission constraints.
Even when that problem is fixed, closure of the smelter would likely lead to the closure of the Huntly Power Station (which was all that kept New Zealand's lights on this winter) while putting off investment in other electricity generation.
For the EA to acknowledge that it found nothing unlawful about the arrangements between Tiwai and its electricity providers, but that it was looking into ways to ensure that future contracts are "efficiently priced" looks surprisingly like a regulator wanting to insert itself into contract negotiations.
Given New Zealand's likely need to increase electricity generation and reduce emissions, such regulatory involvement would seem unhelpful.
When it came to its analysis of the actual functioning of the wholesale market, the report is somewhat vague.
Although the EA found that increases in electricity prices since 2018 may not be explained by underlying conditions, it could not be sure.
"It is not possible to definitively conclude whether all of the increase in prices is due to underlying conditions [including concerns about a lack of gas supply] or if some of the increase is due to prices not being determined in a competitive environment."
It is worth remembering that although the EA gave a strong retail angle to its report, when the work began it did not appear designed to create headlines.
This was a review that EA chief executive James Stevenson-Wallace announced verbally at an energy conference.
Then Woods announced it again when there were signs of extreme stress in the wholesale market.
As pressure mounted the EA promised it would be a robust analysis of the functioning of the wholesale electricity market.
Save its surprising fixation on the contract between Meridian and the smelter, the overall conclusion could have been written before the process started. We might have a problem but we cannot be certain.
