Electricity Authority approves Meridian clearance application

The Electricity Authority has today approved a clearance application relating to a new demand response agreement between Meridian Energy and New Zealand’s Aluminium Smelter (NZAS).

Meridian sought clearance from the Authority in relation to a demand response agreement and two associated amendment letters which modify the existing supply contract between Meridian and NZAS to provide for the addition of a demand response to the contract.

Under provisions of the Electricity Industry Participation Code (2010) introduced in August 2022 (subpart 7 of Part 13), parties must not give effect to materially large contracts (MLCs) unless certain tests are met.

Under the Code provisions any MLC must pass one of two tests:

(a) An economic test of whether the value of the MLC to the generator is greater than the value to the generator of its best alternative (net value test); or

(b) A legal test of whether the MLC allows electricity to be on-sold by the purchaser to a third party, on no worse terms than if the purchaser had consumed the relevant quantity itself (on-selling test).

The Authority, after considering the application and seeking additional information, has approved Meridian’s application for clearance. The clearance remains in place for so long as the demand response agreement, and the amendments made in the two amending letters, remain in force and effect, after which time it shall cease to apply.

The Authority is satisfied that NZAS is allowed to on-sell any unused MW quantities without being subject to worse terms than if it had consumed the electricity itself and that accordingly, the provisions of clause 13.269(1)(b) of the Code are met.

"The Authority determined the arrangements for which clearance was sought satisfy the on-selling test. For so long as the demand response agreement, and the amendments made in the two amending letters, remain in force and effect NZAS is not prevented from on-selling unused electricity. The decision to provide clearance reflects this," says Sarah Gillies Chief Executive of the Electricity Authority.

The Authority approved the application for clearance under clause 13.273 of the urgent Code provisions.

The reasons for the Authority’s decision to approve Meridian’s clearance application are detailed in this decision paper.

More information on the materially large contracts Code amendment.

The urgent Code amendment expired on 19 May 2023 when a permanent Code amendment took effect.