July 14 – Genesis Energy Ltd. and Contact Energy Ltd. are to appeal the first major decision from the electricity industry’s new regulator, saying the Electricity Authority has created investment uncertainty by over-ruling a spike that sent spot market power prices above $20,800 per Megawatt hour.
The authority recently declared an “undesirable trading situation” had occurred on March 26, when electricity consumers in the upper North Island buying power directly from the wholesale spot market suffered extreme prices for several hours during a planned national grid maintenance outage.
The authority has set $3000 per MWh as the high-point for prices during that day, still around 50 times higher than normally prevailing wholesale electricity prices, but lower than Genesis believes is necessary to ensure that its ageing coal-fired Huntly power station remains available for situations of short supply.
Genesis says the appeal was not motivated by a desire to have the EA reset prices at a higher level, but was a point of principle relating to “investment and regulatory certainty,” chair Jenny Shipley said in a statement.
Genesis and the wider market needed assurance about the “nature and scope of the market rules going forward given the uncertainty created by the Authority’s decision.”
Chief executive Albert Brantley said the UTS decision was “wrong in principle and wrong in law” and “alters the ground rules going forward for all market participants in a significant but uncertain way, and …lowers the bar for declaring a UTS.”
“The UTS decision if allowed to stand would simply reward businesses who make poor commercial decisions about exposure to the wholesale spot prices, while at the same time penalising a number of supply and demand side participants who take prudent action in response to market signals to manage their commercial risks.”
Contact chief executive Dennis Barnes said the company had not taken the decision to appeal lightly.
“We consider that the retrospective resetting of prices will create regulatory uncertainty; risks disincentivising parties from putting appropriate risk management in place; and could dampen investor confidence in projects that support security of supply,” said Barnes. “lodging this appeal is a measure of how seriously we view the issues raised by the Authority’s decision.”
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