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Genesis Energy defends actions re price spike

Wednesday 30th March 2011

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Genesis Energy has rejected criticism of its actions when spot power prices in the upper North Island spiked to high levels last Saturday, saying it was not its role to cover the spot market risk some chose to take.

Another state-owned electricity provider, Mighty River Power, said the high prices could reduce its earnings by up to $25 million as it was exposed to buying electricity at wholesale prices more than 200 times higher than normal for a six-hour period.

In a statement today, Genesis Energy said it rejected criticism by some market participants that it acted unreasonably during the well-signalled transmission outage on Saturday.

It had offered hedges to cover the potential trading risk market participants faced from the outage as late as Friday afternoon, and hedges were also offered during the constraint itself, the company said today.

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.

Prices when the thermal units did run had to cover the many trading periods when the units did not run, Genesis Energy said.

For many months it had been offering hedges and other forward products to the market in order for participants to prudently manage their risks.

It would continue to do so and was prepared to consider any type of commercial hedge product that best met the needs of market participants, Genesis Energy.

"We have been very clear to the market that it is not Genesis Energy's role to cover and pay for the spot market risk that some market participants choose to take," Genesis Energy general manager corporate affairs Malcolm Alexander said.

"We have high costs to operate our plant and we will recover those costs when the opportunity arises.

"Our door is always open to those who wish to enter into commercial arrangements with us."

This week, Mighty River Power said it would be pursuing a correction of the prices as provided for under the existing electricity market rules, after the prices rose to about $20,000 per megawatt hour (MWh), compared to normal prevailing prices of less than $100MWh.



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