MRP faced scaling up risk on several carbon credit contracts   27 Nov 2014

Article - BusinessDesk

MRP faced scaling up risk on several carbon credit contracts, court hears

By Fiona Rotherham

Nov. 27 (BusinessDesk) - A contractual dispute over carbon credits that MightyRiverPower is contesting in court is not the first time it’s faced a scaling up of the carbon credits it was required to take as part of its plan to offset carbon emissions from electricity generation.

New Zealand Carbon Farming, the country’s largest supplier of post-1989 bulk carbon credits, began a case in the High Court at Auckland on Monday, suing MRP for $34.7 million over liability for carbon credits the listed energy company was contracted to buy.

NZCF is claiming that new methodology for assessing forestry carbon credits near doubled the cost of the 15-year contract it had with MRP over the Hawarden Forest in north Canterbury from $36.6 million to $71.27 million – a difference of $34.67 million.

MRP is contesting the claim which would mean it would have to buy significantly more carbon units from the supplier than was originally forecast because the contract included a pro-rata scale up or down clause if the amount of carbon sinks produced by the forest was altered under new methodology.

The power company told the court the contract was signed on the basis that the new Field Measurement Approach methodology was coming in that year so the scaling up clause shouldn’t be applied. And even if did apply, MRP also said it shouldn’t have to pay for carbon credits issued for years prior to when its contract with NZCF began in January 2012.

MRP's general manager hydro wholesale Phil Gibson told the court yesterday he was surprised when informed by NZCF in mid-2013 that it planned to invoke the scale up clause and what that would mean to the listed energy company’s uptake of carbon units. The information was given when NZCF approached MRP about renegotiating the contract and increasing the number of units it took.

Under cross-examination, Gibson admitted a number of MRP’s other long-term contracts for carbon units included scale up clauses but not all had been invoked. He said once one supplier had indicated it would invoke the scale up clause, the company had looked at what its potential risk was on all the contracts and that was prior to the meeting with NZCF.

Gibson said the contract with NZCF was the last of 10 long-term contracts it had entered as part of its strategy of meeting its surrender obligations under the ETS and covered around 18 percent of the units it required. The contract was different to others, he said, because it was worked out a range of maximum and minimum units from the forest based on estimates of what the FMA tables would produce rather than the old methodology.

“MRP doesn’t need the extra units and had sufficient security if prices rose as expected at the time of signing,” he said,

Since the contract was signed the government indefinitely postponed energy emitters having to meet their full obligations for their carbon emissions rather than the current half and the price for units has dropped substantially locally and offshore.

Pleadings released by the parties after volumes and prices per unit were kept blanked out at MRP’s request, show NZCF received a number of wash up credits when it filed a mandatory emissions return in 2013 as required every five years under the ETS.

While both parties knew and had modelled estimates on the carbon units likely from the forest under the new methodology, MRP told the court it was only required to purchase units that were transferred to NZCF under the ETS for the calendar year preceding the March 1, 2013 delivery date and was not required to purchase additional wash-up units for other years

It’s understood NZCF’s standard carbon supply contracts don’t include that clause. NZCF told the court the scale up clause states the contractual volume change occurs “for and from the calendar year in which such amendment takes effect.”

MRP has withheld $425,000 from its March 1, 2014 bill from NZCF on the basis some of the previous year’s units remain under dispute and has returned them to the carbon farmer. It is also contesting a further $6.3 million invoice NZCF wants to charge for the top up under the scale up clause.

MRP’s annual report in its notes to the financial accounts said it was involved in a contract dispute over asset purchases which was currently before the courts and had a potential cost of up to $6.4 million over two years.

The case is continuing.

(BusinessDesk)

Add a comment

News

Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students

29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more

New Zealand reaffirms support for Flight MH17 judicial process

7 Mar 2020 News By Rt HON WINSTON PETERS
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more

Business

NZ Government's Economic package to fight COVID-19

17 Mar 2020 Business News By RT HON JACINDA ARDERN
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more

NZ Government announces aviation relief package

19 Mar 2020 Business News By Hon Phil Twyford
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more

Living

Diversity was Key at New Zealand Trade Tasting in London

6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall. It was the first... more

Kiwi author stuns Behind the Butterfly Gate

12 Jan 2022 Arts By Charlotte Everett
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...  New Zealand writer Merryn Corcoran’s... more

Property

Fairer rules for tenants and landlords

17 Nov 2019 Property By Minister Kris Faafoi
17 NOVEMBER 2019 The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more

New Zealand Government will not implement a Capital Gains Tax

17 Apr 2019 Property By RT HON JACINDA ARDERN
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more

Migration

Boosting border security with electronic travel authority – now over 500,000 issued

19 Nov 2019 Migration By Hon Iain Lees-Galloway
19 NOVEMBER 2019 We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more

Christchurch reinstated as refugee settlement location

18 Aug 2018 Migration
18 AUGUST 2018 HON IAIN LEES-GALLOWAY The announcement that Christchurch can once again be a settlement location for refugees... more

Travel

Gallipoli Anzac Day services cancelled

19 Mar 2020 Travel & Tourism By RT HON JACINDA ARDERN
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more

New Zealanders advised not to travel overseas

19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas more

Sport

The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners

27 Oct 2019 Cricket By Charlotte Everett
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more

PREVIEW: All Blacks v England semi-final

26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more

Columns

Gordon Campbell on the Gareth Morgan crusade

11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade First published on Werewolf The ghastly likes of Marine Le Pen in France and Geert ... more

Gordon Campbell on the US election outcome

10 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the US election outcome Well um.. on the bright side, there (probably)... more

Kiwi Success

Congratulations to Loder Cup winner

26 Sep 2018 People By Hon Eugenie Sage
25 SEPTEMBER 2018 The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more

Appointments to New Zealand National Commission for UNESCO

16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO HON JENNY SALESA Associate Education Minister Jenny Salesa is... more

Recruitment

Historic pay equity settlement for education support workers

14 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more

Historic pay equity settlement for education support workers

22 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more