Electricity Authority Decides No Undesirable Trading Situation On 9 August 2021

The Electricity Authority (Authority) has today published its decision on the claim that an undesirable trading situation (UTS) occurred during six trading periods (37 to 42) on 9 August 2021.

The Authority has decided no UTS occurred on 9 August 2021.

"This UTS investigation focused on three critical aspects of the 9 August event; the decisions made by Genesis and Contact Energy in relation to certain generation assets; the system operator’s management of the grid emergency; and the application of scarcity pricing" says Sarah Gillies, General Manager Legal, Monitoring and Compliance at the Electricity Authority.

"The context in which the decisions were made was critical. On Monday 9 August 2021 the country faced the largest demand peak on record in response to one of the coldest nights of the year. This was an extremely rare event and real time decisions were made in a difficult and uncertain situation."

Sarah Gillies says the generation decisions made by Genesis and Contact on 9 August 2021 were in the range of what the market might normally expect based on the circumstances at the time.

"The Authority assessed these decisions based on the context of 9 August 2021. In the Authority’s view, these were rational decisions based on the information at the time and were within the range of what the market might reasonably expect in the circumstances. For that reason, these decisions did not threaten confidence in or the integrity of the market."

While the system operator’s management of the grid resulted in consumers being disconnected, all those consumers were reconnected on the day.

"A UTS is a situation that can be resolved by using the UTS powers under the Code. Consumers were reconnected on 9 August 2021 and for that reason there was no ongoing situation for the UTS powers to resolve.

"The scarcity pricing issue is not straightforward and that’s why it warranted specific consultation. The Authority concluded there was scarcity on 9 August and on that basis scarcity pricing was appropriate. However, the system operator and the Authority agree the island shortage situation (ISS) notice was issued in error - the system operator requested reduced demand instead of instructing electrical disconnection before the ISS notice was issued. Regardless, the outcome was the same - consumers were disconnected in response to genuine scarcity."

Scarcity pricing has never applied before and the application of this provision of the Code was being tested for the first time. 9 August highlighted an issue with the application but with the introduction of real time pricing in the next 12 months, ISS notices will no longer be required and pricing will automatically respond to supply and demand conditions.

"The Authority thanks all parties who submitted on the preliminary and supplementary consultation papers. This investigation involved a lot of technical information, and we appreciate the time and insight from submitters."

The Authority has worked on various workstreams in response to 9 August 2021 including the investigation into this UTS claim; a two-phase review under section of the Electricity Industry Act; consideration of alleged breaches against the Code; and responding to the Minister’s investigation and subsequent recommendations for the Authority and the system operator.

Notes for editors

• The decision follows the Authority’s investigation into the claim of an undesirable trading situation made by Haast Energy Trading Limited (Haast Energy) and Electric Kiwi Limited (Electric Kiwi) on 12 August 2021, and later joined by Flick Energy Limited (Flick Electric) and Switch Utilities Ltd (Vocus New Zealand).
• The claim alleged the UTS was individually and jointly caused by Contact Energy and Genesis Energy for not offering additional generation on the night of 9 August 2021. Genesis Energy did not offer Huntly Rankine Unit 4 (HLY4) to the market and Contact Energy did not offer the Taranaki Combined Cycle station (TCC).
• A 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 UTS and can take any action if we consider it appropriate. This could include suspending Code requirements and imposing new requirements on industry participants.
• The Authority’s decision is specific to the UTS investigation and the legal framework for considering a UTS. The Authority’s findings in the context of the UTS in no way implies these decisions may not have amounted to a breach of other provisions in the Code.
• The Authority received allegations of breaches of the Code in relation to 9 August, including the trading conduct regulations. The test for a UTS is separate from the compliance process.
• On Monday 9 August 2021 approximately 34,000 customers across New Zealand experienced an electricity cut without warning. The biggest impact was felt in the Waikato region with over 17,000 customers disconnected.

The Electricity Authority (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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