An investment analyst has criticised the Electricity Authority for inserting itself between energy companies and industrial power users during contract negotiations.
Investment analysts warn the Electricity Authority's latest rule change could deter big industrial users of electricity, such as data centres. Photo: 123rf
The regulator has rushed through a temporary rule change which would prevent power companies from doing deals to supply more than 150 megawatts of power without its approval.
The change was motivated by the regulator's 2021 report which suggested the cut-price deal by Meridian and Contact to supply the Tiwai Point aluminium smelter, the country's biggest power user, was below cost price, at the expense of other power consumers and a boon to power generator incomes.
The Electricity Authority said the deal maintained demand in the wholesale market but pushed the generation costs onto general consumers, costing them as much as $850 million extra per year.
The temporary rule change effectively pus the regulator at the negotiation table with the smelter and the power companies, to ensure a future deal was in consumer's interests.
But Devon Funds head of retail Greg Smith said the current rock-bottom deal was done in unique circumstances and there were various signals it would not be repeated.
"Rio Tinto effectively had the electricity companies over a barrel [in 2021], the [surplus] electricity was effectively stranded in the South Island which is not the same now."
Since then, national grid operator Transpower had improved the capacity of the network, allowing more power to be sent out of Southland and the power companies had also been exploring alternative uses of the power if the smelter closed, such as green hydrogen.
The price of Rio Tinto's next power contract was widely expected to be higher, which made the regulator's decision a "curious" one, Smith said.
"It sets a dangerous precedent.
"You effectively have got the regulator intervening in contracts between private companies and those are contracts which are determined effectively by the market, which are free, fair and competitive," Smith said.
"And it's effectively adding a layer of red tape that is unnecessary."
Smith said he could not see the rule change lowering electricity prices for consumers and the only real benefit appeared to be improving transparency within contract negotiations.
The current Tiwai contract was the only one which would have fallen under the new rules, but the EA said it was aware that others were being contemplated that could shift prices.
Smith and another analyst spoken to by RNZ Business suggested the rule change could deter big industrial users of electricity, such as data centres, investing in New Zealand.
"This could act as deterrent, suddenly taking these supply contracts out of the hands of private companies and effectively have the regulator oversee them.
"Ultimately, it seems like a change that's not really going to capture a lot, but the main focus looks to have been political I suppose, capturing the Tiwai deal."
During the temporary rule change the Electricity Authority will consult on a permanent change to the industry code.
