New Zealand's largest electricity generator may have spilled water unnecessarily, causing unnecessary gas generation to fire up and prices for consumers to rise.

On Tuesday the Electricity Authority released a preliminary decision that an alleged Undesirable Trading Situation (UTS) took place in the wholesale electricity market in late 2019.

In December a group of small retailers alleged that by Meridian Energy and Contact Energy controlled storage at their hydroelectricity generation in the South Island in such a way that more water was spilled than necessary. It came during a period of heavy rain.

In turn, this caused prices to rise to the point where thermal generation in the North Island was turned on.On Tuesday the EA announced that its preliminary view was that a UTS had taken place.

"What we found is not what we would expect to see given the market conditions in December," Electricity Authority chief executive James Stevenson-Wallace.

"We saw generators having to spill flood water to keep the levels down. What we didn't see and would have expected was lower electricity spot prices driven by lower offers from those generators spilling excess water," Stevenson-Wallace said.

"The prices remained relatively high despite an abundant supply of water and no increased demand during the period."

Contact Energy Mike Fuge chief executive maintained that it had been told that the company, as well as Genesis Energy, were not part of it.

In a statement, Meridian acknowledged that the decision had gone against the company.

"Meridian will review this preliminary decision and will make a submission to the Authority as part of its consultation process."

Previously it has denied manipulating prices.

"Plant availability and transmission constraints restrict the volumes we can generate. We don't spill unless we have to and only do so when required by environmental rules or to manage our dams safely during high inflow events," a Meridian spokeswoman told BusinessDesk in December.

The EA put the impact on the spot market at $80 million between December 3 and December 18.

Tuesday's decision is now open to six weeks of consultation, followed by cross submissions, with a final decision not expected for several months. Any decision could be followed by court challenge.

Luke Blincoe, chief executive of Electric Kiwi, said the preliminary view had found "strongly" against the generators, with the event heaping costs onto retailers.

"There are the types of events that are very, very hard on retailers and push up prices on consumers."

The modelling used in the complaint claimed the event caused the equivalent of 6000 tonnes of coal to be burnt than needed to be.

"They've spilled excess water that directly resulted in thermal generation being dispatched. From an ecological point of view, it's really serious, in our view."

James Shaw, the Minister for Climate Change expressed disappointment in Meridian, which has promoted itself as net zero carbon.

"I'd be concerned if companies are doing things that lead to an increase in our emissions when they don't need to, particularly for companies that are trading on a zero emissions brand," Shaw said.

"If what the EA is saying is correct and they're deliberately causing [the] Huntly [Power Station] to burn more than they otherwise would, that's obviously a bad outcome for the climate."

Parties in the complaint said it was the first time the EA had determined a UTS since 2011.

Steve O'Connor, chief executive of Flick Electric, said despite the company's belief that the market was "fundamentally broken" it was difficult to prove it, but the events of late 2019 were such that he suspected the complaint would be upheld.

"You need very clear evidence and it's only when you get to the extremes of the system that you can find sufficient evidence as opposed to the daily operation of the market … where we still don't believe it's delivering the right outcomes but it's only at the extremes that you can prove that it's not and the behaviour's inappropriate."

During the investigation, the retailers making the complaint warned that the decision may need to be peer reviewed, when a senior EA staffer involved in UTS investigations resigned to join Meridian.