An investigation of soaring electricity prices earlier this winter has pointed the finger at state-owned power company Meridian Energy.

At one stage in mid to late May, South Island spot prices rocketed to around $600 a megawatt hour, more than six times those in the North Island.

The Electricity Authority launched an investigation into why, at a time when South Island hydro catchments had had their driest four months in 80 years of records, high reserve prices were constraining the amount of power that could be sent south across the inter-island high-voltage link.

Meridian and Genesis Energy both run the Waitaki River hydro scheme that generates a quarter of the country's electricity.

The authority has since determined that Meridian's behaviour regarding power that it supplies for the Tiwai Point aluminium smelter near Invercargill ''increased its ability to affect wholesale market reserve and energy prices''.

The wholesale prices are paid by major industries such as forestry and mining companies, but changes to the wholesale prices do not affect households in the short term.

Meridian regulatory affairs manager Gillian Blythe said in a letter to the authority the company had agreed to pay the smelter a weekly fee to obtain the rights to offer extra power to the market at a price it would determine.

The authority said: ''By controlling the offer price of a greater percentage of the available [power] reserves in the South Island, Meridian was able to restrict the ability of North Island generators to compete in the South Island wholesale energy market.

''As a result, wholesale prices were higher in the South Island and lower in the North Island that they otherwise would have been.''

Despite that, the authority concluded that Meridian's actions did not impact on hydro reserves and had not affected security of supply.

Genesis regulatory affairs manager Jeremy Stevenson-Wright said in a letter to the authority Genesis estimated the cost of Meridian's behaviour on retail competition was $2.5 million.

Blythe said Meridian's agreement with the smelter had reduced the risk of using too much water from the hydro lakes.

Meridian also took issue with the authority's handling of the investigation.

''Meridian appreciates that from time-to-time it will be appropriate for the authority to announce it is undertaking an inquiry/review/investigation. However, the contextual information that accompanies such a statement needs to be carefully worded.

''With the benefit of hindsight...we suggest the...statement should have been more tentative or qualified in what it said.

''In the same vein, Meridian suggests the authority needs to be careful when drawing conclusion from its analysis.''

This story has been updated to correct the attribution of the letters written.

- © Fairfax NZ News

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