The Authority has gazetted a Code amendment for the More Standardisation initiatives. The Code amendment for More Standardisation comes into force on 1 December 2011.

This gazetting meets the Authority’s obligations under sections 42(2)(e) and 42(2)(f) of the Electricity Industry Act to implement Code amendments by 1 November to require distributors to use more standardised tariff structures and use-of-system agreements.

The More Standardisation initiatives will reduce barriers to entry in the electricity retail market, increasing retail competition and leading to more efficient pricing of retailer services and greater innovation in the way retailers interact with their customers.

An overview document on the More Standardisation initiatives is available at:

The Gazette notice and Code amendment will be available shortly at:

http://www.ea.govt.nz/act-code-regs/code-regs/code-changes/2011/

On 3 November 2011, the Authority plans to gazette amendments to the Code to provide for a stress testing regime. The target start date for the regime is the second quarter of 2012, with the first disclosures to be presented to the Authority by 31 March 2012.

The stress testing regime requires parties buying from the clearing manager and consumers directly connected to the national grid to calculate their exposure to high spot market prices and report those results to their own board and also to an independent registrar appointed by the Authority. The registrar will compute risk measures and provide them to the Authority in a form that protects the identity of the parties. The Authority will publish the results regularly.

The stress testing regime is an alternative to introducing scarcity pricing for public conservation campaigns (PCCs) and rolling outages. It is therefore being introduced in accordance with section 42(1)(b) of the Act.

Spot market prices often need to rise to very high levels when supply shortages occur so that providers of last-resort resources can earn a return on their investments during the short time period they’re operating. The stress testing regime addresses the concern that some parties exposed to high spot market prices seek to blame their predicament on a poorly functioning or uncompetitive market, rather than accept responsibility for their risk management decisions.

The stress test addresses this problem by making it clear to everyone that parties buying from the spot market did so knowing the risks they were taking and knowing they are accountable for the consequences of their hedging decisions. The stress testing regime makes it clear that accountability for risk-taking lies with the risk-taker.

An overview document and questions and answers on stress testing are available at:

The above initiatives complete the list of new matters that section 42 of the Act required the Authority to address within its first year of operation. As the Authority has adopted alternative approaches to address some of these matters, section 42(1)(b) requires the Authority to provide a report to the Minister of Energy and Resources explaining why it did so and when and how the alternative approaches will address those matters. The Authority is required to provide that report to the Minister before 1 November 2011.