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Electricity Authority resets March 26 power prices lower

Friday 6th May 2011

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The regulator of the wholesale electricity market says a price spike in the wholesale electricity market on March 26 was an undesirable trading situation and it will reset offer prices for that day.

The Electricity Authority's estimates suggest the new offer prices should be set between $1500 and $3000 per megawatt hour (MWh). Spot prices north of Hamilton rose to more than $20,000 per MWh for several hours on March 26.

The authority started a market performance investigation and ordered a delay of final prices for that day, while 35 claims of an undesirable trading situation were investigated.

The issue is seen as a test for the authority, which was set up by the current Government when it disestablished the Electricity Commission.

Business representatives have complained about the increased costs to their business from the price spike, which occurred at a time of good hydrology and they filed for a correction in prices.

Infrastructure investor Infratil has described the event on March 26 as "head scratching".

At one point this resulted in Genesis Energy setting the price of electricity coming from its Huntly power station about 250 times higher than usual. At that price a normal household would pay $3000 a week for electricity.

Mighty River Power has said that the price spike may have cost it $25 million.

The authority said today in a draft decision there was no indication of the forthcoming exceptionally high prices on March 26 until almost real time.

The authority said that Contact Energy's decision to withdraw 425MW from its Stratford power stations at around 1pm on March 25 was also crucial in putting Genesis Energy in a position where its offers at Huntly determined spot prices in a large part of the North Island. Reductions in grid constraint limits by the electricity system operator Transpower also contributed to the outcome, the authority said.

The authority said the events of March 26 threatened to undermine the confidence in and reputation of the wholesale electricity market.



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