Thursday 28th February 2019
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The country’s major electricity generators have been cleared of tacit collusion during last year’s electricity price spikes but may yet be subject to investigation by the Australian Securities and Investments Commission.
The Electricity Authority says it found no evidence of anti-competitive behaviour in the market during a period of sustained high prices from late September through November.
Nor did it believe Contact Energy and Genesis Energy – as major gas buyers during the period - had any major information advantage over other participants in the market.
“The investigation found that there was information asymmetry with regard to gas outage information, but it was small and often non-material, and the best available information was still uncertain,” the authority says in a 90-page report.
“The investigation also found that the perception of information asymmetry was larger than the actual asymmetry. We think this was largely caused by difficulty in accessing information regarding gas outages and other indicators of the gas supply situation.”
The authority noted that its investigation was limited to a claim that the price spikes and the collapse of market-making in the ASX-operated New Zealand electricity futures market during the period constituted an undesirable trading situation – or UTS.
It did find indications of some behaviour that may “require further examination” to determine whether other aspects of the electricity industry code or other laws have been broken.
“Our compliance team and the UTS investigation team are liaising regarding alleged non-compliance with information disclosure obligations in the code. We have referred allegations relating to Australian securities law to ASIC, and will provide further assistance as necessary.”
Small-scale retailers Flick Electric, Pulse Energy, Vocus Group and Electric Kiwi, and Auckland lines company Vector complained to the authority in November that wholesale power prices had been “atypically high” even allowing for declining hydro storage and reduced gas supplies from the Pohokura field.
They alleged a failure of market-making in the futures market and said the failure of timely disclosure about fuel supplies and generator availability by Contact and Genesis had also disadvantaged them and shaken their confidence in the market.
Power prices jumped in late September as South Island lake levels fell and Shell shut production from the offshore part of the Pohokura gas field due to a fault on the production platform.
Those factors, combined with very weak wind production some days, a planned, five-week shutdown of Genesis’ E3p plant and other temporary generation outages, saw average wholesale prices exceed $500/MWh on some days in October – the highest in seven years.
While the power market has seen high prices before, what was most damaging was their sustained nature. Average prices exceeded $200/MWh for about a month from Oct. 8 and then again for some days in mid-November. For many days they were above $400.
Many independent retailers had to stop taking new customers, while Dunedin-based Payless Energy got out of the market, selling its customer book to Pioneer Energy.
For the authority to act on a UTS, it must be satisfied that the event complained of posed a serious risk to the integrity of the market, or confidence in it. There must also be no other mechanism to address the issue.
There have been eight UTS claims in the past decade. Only one of those has been upheld, which was in March 2011 when prices jumped to $20,000/MWh in parts of the North Island after planned transmission work reduced power available to Auckland.
Authority chief executive James Stevenson-Wallace said there is no dispute that prices were unusually high.
But that doesn’t mean there was collusion, and nor does it mean the futures market didn’t work as it should have.
“We didn’t find any evidence of anti-competitive behaviour. We have absolute confidence in the wholesale market,” he said in a statement.
In its report, the authority found that the futures market did work as expected, albeit in a market that can suffer from a lack of liquidity.
“Parties who hedged before spot prices began to rise had little concern with managing their spot price risk. Nonetheless, we are aware of issues with liquidity in the hedge market. Our investigation highlighted these issues again. We indicated in 2018 that we will look at these in our 2019/20 work programme.”
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