Electricity Authority Publishes Preliminary Decision On UTS Claim

The Electricity Authority’s Board has published a preliminary decision in response to the undesirable trading situation (UTS) claim made by Haast Energy Trading, Ecotricity, Electric Kiwi, Flick Energy, Oji Fibre, Pulse Energy Alliance and Vocus (the ‘claimants’).

The Authority received the claim on 12 December 2019 alleging a UTS had started on 10 November 2019 and was ongoing at the time of the claim.

The Authority has investigated the claim and considered all the factors put forward by the claimants as well as additional information provided by Meridian and Contact. The analysis and conclusions are detailed in the preliminary decision document.

“The Authority has investigated all matters of the claim and conducted market simulations to test our thinking and better understand all factors at play during the time of the alleged UTS” says Electricity Authority Chief Executive James Stevenson-Wallace.

“Our preliminary view is there was a UTS between 3 and 18 December 2019. What we found is not what we would expect to see given the market conditions in December.

“We had an extreme weather event in the South Island with severe rainfall and lake levels over and above the maximum. Not surprisingly, 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.

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

The wholesale market operates on a fine balance of supply and demand. It’s not as simple as there is lots of water so electricity should be cheap – there are other contributing factors to consider such as fixed costs of generation, where the hydro supply is in New Zealand and what other generation is running at the same time.

When we looked at all the details we didn’t expect spilling generators to be offering prices as high as they did, given the conditions at the time.

The Authority closely monitors the market. Before we received the claim, the Authority had already opened a review of 2019 wholesale market prices.

Mr Stevenson-Wallace says the spilling was not unusual but the trading behaviour at the time of spilling was not what the Authority would expect to see so we opened a review.

“As the regulator, we’re focused on making sure the right settings are in place to ensure a competitive market in which consumers have choice, and participants compete on a level playing field. This includes closely watching market conditions and trading behaviour.”

The Market Development Advisory Group, an advisory group to the Authority, has recently advised the current trading conduct rules lack certainty for participants and has suggested a new set of rules.

“The market is performing well and doing what it was intended to do but there is always room for improvement – whether it be in the design of the market or on the rules managing participant behaviour.

“There’s a lot at stake and we want to make sure the market operates in the best interests of New Zealand consumers.”

The preliminary decision document is on the Authority’s website and available for feedback now.

NOTES

1. The Authority received a claim of an undesirable trading situation (UTS) on 12 December 2019. The claim was made by seven parties – Haast Energy Trading, Ecotricity, Electric Kiwi, Flick Energy, Oji Fibre, Pulse Energy Alliance and Vocus (the ‘claimants’). The claim relates to the period from 10 November to 16 January 2020.
2. An undesirable trading situation (UTS) in the electricity market is an extraordinary event which threatens, or may threaten confidence in, or the integrity of, the wholesale market that cannot be resolved under the Code. We investigate any potential undesirable trading situation and can take any action if we consider it appropriate. This could include suspending Code requirements and imposing new requirements on industry participants.
3. This is a preliminary decision open for consultation for a six-week period. Submissions are due by 5PM, 11 August 2020.
4. The Authority has commenced a separate compliance process into a breach of the high standards of trading conduct provisions.

The Electricity Authority is an independent Crown Entity with a statutory objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

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