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Electricity Authority confirms cut to prices after March spike

Monday 4th July 2011

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The Electricity Authority has confirmed its will cut to a maximum of $3000 per megawatt hour (MWh) spot market electricity prices from Genesis Energy's Huntly power station that spiked to around $19,000 on March 26.

The authority proposed the move last month, and confirmed it today, to correct an undesirable trading situation (UTS) that arose when national grid operator Transpower had closed part of the grid to upgrade lines into Auckland.

After the price spike, 35 claims of a UTS were made to the authority relating to the offer behaviour of Genesis Energy at the time.

Had the high spot prices been allowed to become final prices, they threatened to undermine confidence in the wholesale market for electricity, and threatened to damage its integrity and reputation, the authority said.

But it also noted that high offer prices into the spot market, and exceptionally high spot market prices did not necessarily constitute a UTS.

Had the exceptionally high prices resulted from a genuine scarcity of electricity supply, and the high offer prices been well signalled in advance, it was unlikely to have found the events of March 26 were a UTS, the authority said.

Although Genesis Energy had submitted its $19,000 to $20,000MWh offers to the market the day before the price spike, forecasts of the spot market prices had failed to consistently predict actual prices. That was due to demand forecast inaccuracies in the price forecasting process.

It was important that price was used to signal scarcity to industry participants.

NZPA



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