Meridian hits back at Electric Kiwi claims, suggesting security payments are the issue

New Zealand’s largest electricity retailer has fired back at claims it refuses to agree terms to trade in the wholesale electricity market, suggesting the issue is security payments.

At the end of April Electric Kiwi chief executive Luke Blincoe wrote to Energy Minister Megan Woods warning the company was focusing its resources on Australia because of a lack of confidence in the wholesale market here.

As part of the claims, Blincoe told Woods that two of New Zealand’s largest generators – both majority owned by the Government – were unwilling to engage on the terms to trade wholesale electricity futures to allow it to hedge risk.

“As we have grown our ability to hedge at a reasonable price has been obstructed through a lack of access to equivalent contract terms with vertically-integrated counterparties; and in the case of Meridian and Genesis , a complete unwillingness to even agree terms under which they might trade,” the letter, released under the Official Information Act, said.

The letter references master agreements published by the International Swaps and Derivatives Association, commonly used between parties to trade derivatives such as electricity futures contracts.

Blincoe told the Herald that Electric Kiwi had a range of agreements with other parties but had struggled to reach agreements with Meridian and Genesis.

“To us it’s another example of the willingness to use and abuse market power.”

Subsequent to the letter Genesis had sent through the terms of the agreement but it was “almost irrelevant” due to the current state of the wholesale market, Blincoe said.

For much of this year wholesale electricity prices have been far above long term averages, leading to warnings that independent retailers and energy intensive industries are at risk.

The Major Electricity Users’ Group, provided a copy of the letter, said if Blincoe’s claims were correct, the Electricity Authority or Commerce Commission should look into whether it amounted to major generators using market power to stifle competition.

But the generators have hit back hard at the claims. Meridian, which generates more electricity than any other company, said the statement that it had refused to agree hedge terms with Electric Kiwi “is false and Mr Blincoe knows it”.

“We are very disappointed that Luke Blincoe has written to a Minister of the Crown and made at least one representation about Meridian that is untrue,” a Meridian spokeswoman said in a statement.

Meridian provided the Herald with what it said was a timeline of negotiations, claiming after offering draft terms in late 2020, Electric Kiwi broke off negotiations at the end of September “without any explanation” and did not contact Meridian again until March, when Electric Kiwi asked it to “price a particular transaction”.

Meridian said it told Electric Kiwi it needed to agree the terms first. “Electric Kiwi did not respond and we have heard nothing further from them since 9 March”.

Meridian said it suspected that “the real sticking point” for Electric Kiwi was its refusal to provide security which were part of the terms of agreement “and if so Electric Kiwi’s position is hypocritical.”

“It is normal commercial practice in any market, including the New Zealand electricity market, that a counterparty incurring debt with another will make available sufficient collateral to reduce the credit risk for the party providing the debt.We have agreed such terms with other parties trading in the New Zealand market, including independent retailers.”

Blincoe claimed the negotiations were not in good faith.

“The reality is that the terms offered to Electric Kiwi [by Meridian] were miles away from normal commercial practice,” Blincoe said.

Electric Kiwi was always willing to negotiate appropriate credit margin requirements but could never agree to Meridian being able to demand any amount of cash from Electric Kiwi at any time for any reason.

“There was a clear lack of good faith in Meridian’s offer and they know it.”

Genesis Energy, meanwhile, said in a statement that it had signed a swaps and derivatives agreement with Electric Kiwi on May 26.

“At the same time a request was made for information for a credit assessment, something we require to transact under these arrangements and a routine process. We look forward to receiving that information and working with them in due course.”

Blincoe said the negotiations had dragged on since 2018 and had only been concluded “at a time when wholesale prices are extremely elevated and prices are infeasible for an independent retailer to purchase hedges”.

The Electricity Authority has said it is conducting a “robust” assessment of the functioning of the wholesale market. It is expected to present the findings of this to its board in September and release it publicly shortly afterwards.

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