A car is running along the coast

Championing competitive markets

Supporting fairness and efficiency

While decisions don’t always go our way, we continue to advocate for changes to the market that deliver great outcomes for market participants, customers, and the environment.

We’re fortunate that, in both the New Zealand and Australian markets, regulators are committed to supporting open, fair and efficient markets. This matters because, while the conversations in the two markets are different, changes to public policy that lead to changes to legislation or regulation in either New Zealand or Australia (including electricity regulation, changes in policies to support renewable energy, and new or changed environmental regulations) have the potential to significantly impact our business. Such changes could adversely affect our sales, costs, relative competitive position, development initiatives or other aspects of our financial and operational performance, or force undesired changes to our business model. Whilst we remain aware of the risk, what we have seen on both sides of the Tasman over the last few years is net positive outcomes, particularly as they relate to climate action.

In FY20, Meridian was involved in public policy and electricity regulation decisions that didn’t go our way. But, as a key player in the energy sector, we have a responsibility to advocate for a market environment and a wider regulatory environment that are conducive to achieving our commercial and sustainability goals and that provide the best outcomes for consumers.

Rebalancing transmission costs

In October we responded to the Electricity Authority’s 2019 Issues Paper: Transmission Pricing Review, saying that, in our view, there were complex problems with the current Transmission Pricing Methodology (TPM) and that the existing TPM guidelines needed to be rethought. We said that without urgent reform, New Zealand would face the prospect of ongoing inefficient grid use, significant inefficient investments and a development path that would cost consumers billions of dollars more than it should.

We strongly supported the proposed new TPM guidelines that would deliver significant benefits to New Zealand consumers. In June 2020, after more than 10 years of consultation and debate, the Electricity Authority issued new TPM guidelines that mean the HVDC will be treated in the same way as other AC transmission assets, and South Island generators will no longer be the only ones that pay for the HVDC. The Electricity Authority estimates that Meridian’s overall transmission bill will reduce by $27 million per annum when the new reform package is implemented in 2023.

Crucially, the Authority estimates that over time the new guidelines will deliver significant benefits to consumers (around $1.3 billion overall). The change will also support New Zealand’s transition to a low-carbon economy by incentivising more efficient investment and the use of the grid.

Preliminary 'undesirable trading situation' finding

Meridian was disappointed to be the subject of a UTS claim in FY20 and a related trading conduct complaint from a group of energy traders and independent retailers. The matter related to exceptional rainfall and inflow events in November and December 2019, and an allegation that Meridian and other South Island generators could have generated additional electricity using some of the water we were forced to ‘spill’ through our hydro gates and structures during those events.

On the final day of the financial year, the Electricity Authority released its preliminary decision, indicating that it believed Meridian Energy had been involved in a UTS between 3 December and 18 December 2019. The Authority's analysis suggests that just under 0.5% of the total amount of water that Meridian either generated or spilled past its structures during December had been avoidable. It concluded that this resulted in South Island wholesale power prices being higher than they should have been during the period of the UTS.

We have a different view of the event. We'll now engage with the Authority as it works through its full process and makes its final decision later in 2020.

At the same time, an Electricity Authority advisory group has proposed rule changes that would redefine trading conduct standards under the Electricity Industry Participation Code. Meridian supports the intent of the proposed changes, as the trading conduct standards are in our view currently opaque, lacking in clarity and in need of reform. We’ve asked the Authority to run its own consultation on any changes rather than rely on the work of an advisory group, and suggested that a full cost-benefit analysis be undertaken.

Highly competitive markets

New Zealand has one of the world’s leading energy systems in terms of price, resilience and sustainability according to the World Energy Council, which also ranks our energy system as the 10th best in the world.

The electricity sector is the most competitive it’s ever been. There are currently 39 retail brands in New Zealand and 33 retailers in Australia, and most are engaged in aggressive pricing campaigns and making new offers that are highly price competitive.

In Aotearoa, half a million households change plans every year and a further 60,000 compare what they’re paying with other offers but decide not to switch.

The nature of competition is also changing and barriers to competition are reducing, enabled by more new technologies, open and available data and more liquid hedge markets. This is great for consumers and requires retailers like Meridian to constantly innovate to remain relevant for their customers and to become more efficient to remain price competitive.

Price will always be a big factor in the electricity sector, but sustainable retail success requires more than just a sharp price. Meridian focus is on delivering what customers tell us they value, in the most efficient ways possible. We look to gain, retain and add value for our customers through our brand, our offers and our customer experience. At the same time, we pursue reducing our costs through simpler systems, insightful customer data and a fast adaptation to technological and other opportunities.

Electricity Price Review final report released

In October 2019 the Government’s Electricity Price Review panel released its final report and recommendations.

Meridian considers that the report and the commitment from the Government to implement various recommendations are balanced, and well-considered, and reflects the fact that, overall, the sector is performing well for New Zealanders. Meridian was particularly pleased with the recommendations to support people who struggle to pay their energy bills and the proposals to phase out the low-user tariff regulations and encourage all retailers to stop clawing back prompt payment discounts.

In October 2018 Meridian made the decision to replace prompt payment discounts with a fairer pricing structure. We believe this change has helped those customers who struggle to pay their bills on time as they no longer lose their discount as a result of late payment.

The Government has since written to all retailers asking them to remove prompt payment discounts. Meridian is pleased to be able to report that off the back of the Government’s letter, Genesis Energy and Contact Energy have announced that they’ll stop requiring prompt payment as a condition of their customer pricing offers.

Contributing to Australian regulatory changes

Three wind turbines under the sunset

In Australia we interact with a range of regulators and agencies to advocate for a fair, transparent and equitable trading market. In FY20, for example, we worked with the Australian Energy Market Operator, the Australian Energy Regulator and the Australian Energy Market Commission on a range of proposed market operations and rule changes.

We also worked with the Australian Competition and Consumer Commission and the Essential Services Commission of Victoria on matters related to consumer data and protection.

Our lobbying efforts focused on price regulation, specifically the Victorian Default Offer and the Default Market Offer. We suggested that relevant regulators, in setting pricing for energy in both jurisdictions, consider recent changes to the costs that retailers were facing overall and as a specific result of the COVID-19 pandemic.

We also made a submission on the Australian Government’s Technology Investment Roadmap, supporting the development of technologies to reduce the reliance on higher-emission alternatives, and highlighting the need for a technology-agnostic approach.