Consultations

The Authority is consulting on proposed amendments to Part 13 of the Electricity Industry Participation Code (Code). The proposed amendments are intended to facilitate the implementation and operation of reconfiguration auctions in the financial transmission rights (FTR) market.

The FTR manager has proposed to introduce reconfiguration auctions to the FTR market in 2014 as part of its 2014 allocation plan. FTR reconfiguration auctions are useful for improving the flexibility of FTRs, and therefore the efficiency of the FTR market in providing locational price risk management. Improving locational price risk management is expected to improve competition in, and the efficient operation of, the wholesale and retail electricity market.

The key difference between reconfiguration auctions and the existing secondary trading process for FTRs is that reconfiguration auctions will allow existing FTRs to be transformed into different types of FTR based on the demand by bidders in the auction.

On 18 July 2013, the Authority made an urgent amendment to the Electricity Industry Participation Code 2010 (Code) to provide for increased flexibility regarding the timing of invoicing of the wholesale electricity market in the event of a delay in the publication of final prices.

Because the amendment was made under urgency, it will expire on 19 April 2014, 9 months after the date it came into force.

The Authority expects that a delay to final pricing that would affect clearing manager invoicing would be a very rare event, but should it occur, the issuing of clearing manager invoices and subsequent payments would need to be delayed as, until the urgent Code amendment was made, there was no provision under the Code for late settlement or revisions of FTR clearing manager settlements. For this reason the Authority considers that the changes made by the urgent Code amendment should be made permanent.

The Authority has also noted that there are issues within the Code that impact the ability of the clearing manager to re-issue an invoice if the results of a volume dispute cause a change to reconciliation information provide to the clearing manager.

The purpose of this consultation paper is to obtain participants’ views on changes to clauses 14.36 and 14.73 of the Code that

1. allows flexibility for invoicing timeframes if the publication of final prices is delayed, and
2. enables the clearing manager, if it receives revised reconciliation information after issuing invoices, to either prepare revised invoices, or seek direction from the Authority, depending on the timing of receiving the revised reconciliation information

On 11 August 2011, the Electricity Authority gazetted (No. 123, p.3402) an amendment to the Electricity Participation Code 2010 (Code) to allow for the introduction of financial transmission rights. The amendment came into effect on 1 October 2011.

As preparations are made for the start of the FTR market on 1 May 2013, a number of issues with the Code have been identified. In response to a number of Code amendment proposals seeking further clarification of the Code, the Authority has released this consultation paper seeking industry feedback on the proposed solutions.

About this consultation

This consultation paper proposes the following changes to the Code:

• where revenue inadequacy arises, the clearing manager will be required to scale FTR Hedge Values (whether positive or negative) to re-establish balance between invoiced inflows into the FTR account and invoiced outflows from the FTR account;
• provision is made for the situation where a payer default on settlement day means that insufficient revenue is paid into the FTR account from payers to fund invoiced amounts to payees from the FTR account. All amounts to be paid out of the FTR account to payees and to grid owners will be scaled pro rata;
• clarification around how FTR-related amounts are to be included on payer and payee invoices;
• arrangements for invoicing when final pricing is delayed such that the delayed trading periods cannot be settled at the same time as the other trading periods in the month;
• changes to schedule 14.6 calculations to use balanced injection patterns only; and
• a number of minor changes.

Briefing

An informal briefing session on these issues was held at the Electricity Authority on Monday, 23 July 2012. The presentations and worked examples of the different options are available from the project page.

This consultation is being undertaken by NZX, who is the clearing manager, not by the Authority. The Authority has published this page to facilitate participants' access to the consultation material.

Under the Code, the clearing manager is required to prepare and consult on the draft methodology for determining the minimum level of security required from participants who hold financial transmission rights (FTRs) (draft prudentials methodology).

The clearing manager has released its draft methodology for consultation on its website.

Public briefing

NZX will hold a workshop on the draft FTR prudentials methodology on the afternoon of Thursday 3 May 2012 in Wellington. Details are available at NZX's website.

Submissions

The clearing manager is required to consult with persons that the clearing manager thinks are representative of the interests of persons likely to be substantially affected by the methodology.

Submissions must be made separately and directly to NZX in the form specified on its website. Submissions must not be sent to the Authority. Please view the clearing manager's website for submission details.

NZX Group website

After considering submissions, the clearing manager will submit its revised draft methodology to the Authority for approval. The clearing manager is required by the Code to supply the Authority with a copy of each submission. The Authority intends to publish the submissions and related documents, and the Authority's final decision.

Your submission is likely to be made available to the general public on the Authority's website. Submitters should indicate any documents attached, in support of the submission, in a covering letter and clearly indicate any information that is provided to the Authority on a confidential basis. However, all information provided to the Authority is subject to the Official Information Act 1982.

Consultation paper

Go to the clearing manager's website to download the consultation paper.

This consultation is being undertaken by Energy Market Services (EMS), who is the FTR manager, not by the Authority. The Authority has published this page to facilitate participants' access to the consultation material.

Under the Code, the FTR manager is required to prepare and consult on a draft FTR allocation plan. The draft plan covers the design of financial transmission rights (FTRs), FTR auction design, and FTR grid design.

The FTR manager has released its draft FTR allocation plan for consultation on its website.

Public briefing

The FTR manager will hold a workshop on the draft FTR allocation plan on 3 May 2012. To register, go to the FTR manager's website.

FTR manager's website

Submissions

The FTR manager is required to consult with representatives of parties who may be affected by the FTR allocation plan. After considering submissions, the FTR manager will submit the finalised plan to the Authority for approval.

Submissions must be made separately and directly to EMS in the form specified on its website. Submissions must not be sent to the Authority. Please view the FTR manager's website for submission details.

After considering submissions, the FTR manager will submit its revised draft plan to the Authority for approval. The FTR manager is required by the Code to supply the Authority with a copy of each submission. The Authority intends to publish the submissions and related documents, and the Authority's final decision.

Your submission is likely to be made available to the general public on the Authority's website. Submitters should indicate any documents attached in support of the submission in a covering letter and clearly indicate any information that is provided to the Authority on a confidential basis. However, all information provided to the Authority is subject to the Official Information Act 1982.

FTR manager's website

Consultation paper

Go to the FTR manager's website to download the consultation paper.

FTR manager's website

NOTE: On 8 November 2011 the Authority has republished the consultation paper, with one error corrected. On page 19, questions 1-5 now refer to Table 3, not Table 2.

As part of implementing an FTR market, the Authority proposes some amendments to regulations.

The Authority has amended the Code to establish an FTR market. The Code amendment was to address the 'new matter' requirement in section 42(2)(c) of the Act, to assist wholesale electricity market participants to manage their inter-island locational price risk. Following consultation in July 2011, Code amendments were gazetted on 11 August, and came into force on 1 October 2011.

The policy objective and the details of the Code amendment were made after consultation with the electricity industry. This consultation paper does not reiterate the reason for establishing the FTR market, as these decisions have been made.

In order to implement the Code amendment establishing an FTR market the Authority has identified that some amendments to the regulations are necessary. The proposed amendments will:

• establish the FTR manager as a market operation service provider under the Electricity Industry Act 2010;
• establish a liability limit for the FTR manager;
• add “FTR manager” to the list of market operation service providers required to hold professional indemnity insurance; and
• add “a person who suffers loss as the holder of an FTR” to the list of persons to whom the clearing manager is liable for financial loss.

The Authority invites submissions on these proposals. The feedback from this consultation will assist the Authority to finalise the regulations and will inform a Cabinet Paper to propose the regulations to Cabinet.

On 29 July 2011, the Authority published Erratum to Appendix D of the consultation paper.

The Authority is progressing a number of priority projects to improve the performance of the electricity market. The proposed introduction of financial transmission rights (FTRs) is one of these projects.

FTRs are a financial instrument that provides cover for price differences between pricing nodes on the transmission grid ("locational price risk"). The Authority is proposing introduction of FTRs to provide cover of price differences between the North and South Islands, specifically Otahuhu and Benmore ("inter-island FTR").

The project has reached the stage of proposing draft Code to provide for the introduction of the inter-island FTR. The Authority invites submissions on this proposal, which is described in the consultation paper.

Public briefing

The Authority held a briefing on Tuesday 19 April 2011, on locational price risk and scarcity pricing.

Public Briefing.

Responses to requests for more information

The Authority has published responses to requests from participants for more information on the cost benefit analysis developed for locational price risk.

One of the projects within the Market Development Programme is the development of a mechanism for managing locational price risk as a means of improving competition in the electricity market.

The project has reached the stage of having a proposal for the introduction of a locational hedge in the form of a financial transmission right (FTR) between the North and South islands. That proposal is included in the Consultation paper.

A briefing to present the proposal in advance of parties preparing their submissions will be held on the 23rd September 2010.

The Commission invited submissions on the proposal in this paper, to be received by the Commission no later than 5:00 p.m. on 22 October 2010.

Options for better management of locational price risk are being examined and an initial preferred option has been identified.

A preference for a hybrid of a locational rental allocation (LRA) and financial transmission rights (FTRs) is now being consulted on.

Updated versions of the Consultation Paper and Appendix 2: EGR Consulting Report (changes made shown in track changes) were added to the Commission's website on 25 November 2009. These updates address technical issues in relation to treatment of the HVDC in some options.

The Commission sought feedback from stakeholders on the information and observations presented in this paper. This information was used to determine if the Locational Rental Allocation (LRA) initiative presented should be further progressed.