Archive - FTR development

Other parties were concerned about the potential competition implications if parties currently receiving LCE receive Residual LCE and participate in FTR auctions.

The Authority, in conjunction with LPRTG, continued work analysing the impact of the selected methodology to reallocate residual loss and constraint excess. This analysis has now concluded and the attached information paper sets out the Authority's decision not to change the current Code provisions and the analysis supporting that decision.

The Authority invited feedback from interested parties on the analysis and conclusion in this paper. Six parties provided feedback, these are attached below.

FTR Code amendment and gazette notice

As a result of feedback received in submissions and consultation with LPRTG, some changes were made to the draft Code amendment. These were outlined at an industry briefing session, held on 2 August 2011 at the Authority's offices, and in the following information paper:

Stochastic Optimization Limited were asked to peer review Schedule 14.6 of the draft Code amendment (as drafted in the April 2011 Consultation paper) and appendices D and E of the April 2011 Consultation paper. Following their report some changes were made and an updated version of Schedule 14.6 produced.

This updated version of Schedule 14.6 was then provided to Stochastic Optimization for review prior to being finalised in the Code amendment made in August 2011. Findings of this second review are found in the supplement to the report on locational price risk management.

The original report refers to a version of Schedule 14.6 provided to Stochastic Optimization in July 2011 (the version from the April 2011 Consultation paper), and refers to sections and equations that are in that version. As a result of corrections made to Schedule 14.6, some of the sections and equations from the original report are now out of date.

On 12 September 2011, the Stochastic Optimization Limited's supplement to the report on locational price risk management was republished to correct some minor numerical errors in the example on page 6.

The following document is available to help both industry participants and interested parties understand the changes to the Code to allow for FTRs and understand the basics of an FTR:

On 12 April 2011, a consultation paper was released identifying changes to the proposal from the previous round of consultation (September 2010) and proposing draft amendments to the Code.

Consultation - Managing locational risk: Proposed amendments to the Code

The Authority commissioned the following reports in the course of developing the proposal:

A briefing to present the proposal was held in Wellington on 19 April 2011, further details are available on the briefing page.

Briefing - Locational price risk/ scarcity pricing briefing

Following further analytical work and taking account of participants' reinforcement of the need for simplicity and flexibility to accommodate future possible developments in the electricity market, the Commission proposed an inter-island FTR as its preferred option. The proposal is included on the consultation page.

Consultation

In the course of developing this proposal the Commission received and considered the following papers:

A briefing to present the proposal was held in Wellington on 23 September 2011, further details are available on the briefing page.

Briefing

The Commission, working with the LPRTG, undertook a supplementary review of the locational price risk options that were included in the October 2009 Options paper. The process and outcome of the supplementary evaluation are included the following information paper:

 As part of this supplementary evaluation the Commission received and considered the following paper from Paradox Strategic Advisors Limited:

This Information Paper includes:

• the results of the Commission's analysis of key issues raised by submitters on the October 2009 Options Paper and
• the criteria that the Commission has adopted to select the high-level locational hedge option to be taken to detailed design.

The material considered as part of this analysis is attached for information purposes. The cost-benefit analysis of an LRA presented here is preliminary and only considers a simple LRA model.

 Following the consideration of submissions on the Issues Paper and the additional material listed above, it was decided that further work on locational hedges should consider LRAs, FTRs, zonal pricing and combinations of these options. For this reason, the Options Paper considered an LRA, an FTR, a hybrid of an LRA and FTR, and zonal pricing.