Electricity Authority decision in best interests of investors and power users

The Employers and Manufacturers Association has welcomed the decision by the Electricity Authority that an Undesirable Trading Situation (UTS) occurred on March 26 when spot power prices soared to a massive $20,000 per megawatt hour north of Huntly.

“The decision shows this regulator has the ability to take account of the best interests of investors, consumers and the overall economy,” said EMA’s chief executive, Alasdair Thompson.

“The interim decision would reduce prices during the critical 6 hour period on March 26 from up to $20,000 a megawatt hour down to something between $1500 and $3000.

“Nonetheless the event makes very clear the huge risk facing spot price buyers – its much, much greater than foreign exchange volatility.

“The event has also damaged the electricity market’s reputation and the EA must now move to establish greater investor and consumer confidence.

“That can only be done by driving out excessive pricing and making competitive changes to the market so that no generator can collar the market and game it. The performance of the hedge market also needs urgent attention.

“On March 26 all generation in the Auckland area and points north, other than that owned by Genesis at Huntly, was running flat out. That meant Genesis was able to adjust volume and price offers at both of its Huntly generators.

“If Southdown had not been running (it was), the price spike could arguably have still been the same or higher depending on Genesis’ tactics. If Auckland had say 2-300 MW additional generation in Auckland, or if big consumers knew and had reduced their load by that amount (unlikely), Genesis would not have been able to set the massive prices experienced north of Huntly on 26 March 2011.

“Genesis apparently only did what the market allowed it to do and the EA has recognised that.

“If businesses don’t have the appetite for the level of spot market risk they will need to change how they contract to receive electricity. If they do have the risk appetite, they should engage in active risk management.

“For those who have lost an appetite for spot price exposure, EMA has an excellent service for those seeking lowest fixed prices via a regularly run bulk tender process. This suits many medium and small sized businesses and some larger ones too can benefit by participating.”