Mighty River contracts 'vindicated' in wholesale power price crisis

The surge in wholesale electricity prices vindicates Waikato generator Mighty River Power's decision to offer "horribly overpriced" contracts this year, says the company.

Chief executive Doug Heffernan said Mighty River could see a supply risk when inflows into southern hydro lakes from January fell below those in the 1992 electricity crisis.

Natural Gas Corporation, whose electricity retail business On Energy has chalked up losses of $300 million, has complained that hedge contracts offered by generators were too expensive in February and March.

That was why it went into the winter largely unprotected from price rises.

At NGC's request, the electricity market's surveillance committee is investigating the conduct of South Island generator Meridian Energy and others.

But Dr Heffernan said the 1992 experience had led Mighty River to believe there was a risk hydro generation might be constrained.

"We found ourselves horribly overpriced in the contracts market because we had that view compared with our competitors. We would sit back now and say, 'Well, actually, we had that right.'

"We actually lost quite a lot of volume in the contracts market to competitors who were pricing more cheaply than us."

Mighty River's stand has been tempered by its own experience of water shortages in the past three years.

Its main catchment, Lake Taupo, is at just 17 per cent of its maximum usable storage at present.

The company last week responded to the crisis by having its Auckland energy business, Mercury, offer rebates to its 250,000 customers if they saved power.

Dr Heffernan said energy savings by fixed-price customers would free production for sale on the spot market at up to four times the price.

He supported the market surveillance committee's review of Meridian's conduct in the wholesale market, because the panel was the only body that could determine if there had been any abuse.