Electricity Authority investigates price spike

Friday 1st April 2011

The Electricity Authority has started a market performance investigation into power prices last Saturday, when provisional wholesale electricity market prices soared.

The investigation would look at the spot and hedge markets, and focus on identifying areas of the electricity industry participation code for possible future development, the authority said today.

The authority met yesterday to look into an initial report on claims by several parties of an undesirable trading situation (UTS) on March 26.

A delay of final prices has been ordered for that day while the claims are investigated.

Last spot prices north of Hamilton were more than $19,000 per megawatt hour (MWh) for several hours, and reached $8000MWh in the lower North Island.

Earlier this week, Mighty River Power said it would be pursuing a correction of the prices, noting that normal prevailing prices were less than $100MWh.

Genesis Energy countered criticism of its role in the price spike, saying it had offered hedges to cover the potential trading risk market participants faced from the outage as late as last Friday afternoon, and hedges were also offered during the constraint itself.

Prices offered into the wholesale market by Genesis Energy were designed to recover the costs of operating the expensive thermal power station at Huntly, which had high operating costs and declining use.

The Electricity Authority's website lists 14 entities that have made claims of UTS, including Meridian Energy, Mighty River Power, ASB Bank, NZ Refining Co, Juken NZ, Vodafone, Telecom, Auckland Museum, Nufarm and NZ Sugar.

Authority staff are to report back next week.

In the interim, the UTS committee had received assurances from several participants that they had sufficient hedge agreements to manage commercial risks tomorrow, when grid outages near Hamilton were scheduled, the authority said.

It cautioned that parties exposed to spot market prices must assess the risks for themselves.

The authority also noted that a comprehensive set of reforms was under way to improve performance in both the spot and hedge markets.

The primary focus of initiatives was to increase competition in the electricity industry and encourage spot market purchasers to place greater reliance on commercial tools to manage risks.

NZPA

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