Authority seeks more information on the futures market

Electricity Authority seeks more information on the futures market and market making arrangements

The Electricity Authority has released a discussion paper to inform its review of the performance of the futures market and current market making arrangements.

The Authority considers that the futures market works well most of the time. However, when there is significant uncertainty about future prices, market activity can become unstable. This can mean the difference between the best price to buy a contract and the best price to sell a contract widens and market maker activities can become inconsistent.

Stakeholders have expressed concerns to the Authority about the efficiency of prices and the ease with which deals can be struck during these periods, particularly since the Pohokura gas field outage in spring 2018.

Through this discussion paper the Authority is seeking more information from industry participants on how market making services should be provided in the wholesale electricity market on an ongoing basis.

“Market participants hold the information needed to design an effective intervention. They have the best information regarding the futures market and how market making services affect consumers, and how the Authority can intervene to ensure consumers receive the maximum benefits from any enduring solution,” said James Stevenson-Wallace, Chief Executive of The Authority.

The futures market is uniquely important because it produces a robust forward price curve that benefits everyone, even those who are not trading futures or industry participants. The forward price curve provides information on what price to sell electricity to consumers, whether to make an investment in generation, whether to operate a generation plant, or store fuel. This enables participants to make better decisions – which ultimately benefits consumers.

“This project and the discussion paper build on the previous work of the Authority, the ASX, market makers, and market participants to evolve the futures market and the market making arrangements that have supported it over the previous decade. The Authority constantly monitors the market to ensure it functions for the long-term benefit of consumers.”

“We want to hear from interested parties on our analysis-to-date and get more information from participants to support further analysis to help us resolve these issues. We want to fully understand all the issues – and any additional evidence underlying them – before we make any decisions.”

The paper is responsive to the views of the Electricity Price Review Panel and the Government’s response.
“We have heard and understood the concerns raised by the Minister, the EPR Panel and stakeholders. Our review will take an objective and evidence-based approach to understand how the futures market and market making arrangements have performed – this is a necessary step to ensure any intervention builds confidence in the market, enhances its performance, and provides long-term benefit to consumers.”
The discussion paper, Ensuring market making arrangements are fit-for-purpose over time is available on The Authority’s website.

The period to provide feedback closes at 5pm on Monday, 2 December 2019.

The Authority’s Board is targeting a decision in May 2020.

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