Commercial market-making scheme: levy consultation
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The Authority is consulting on changes to the Electricity Industry Levy to support the implementation of a commercial market-making scheme. The commercial scheme is part of the Authority’s long-term approach to market making, which involves a deliberate transition, over several years, to commercial providers.
The addition of commercial market-making service providers will help strengthen and support the operation of the hedge market, enhance efficiency and improve trust and confidence in forward prices of electricity in the wholesale market.
Under a commercial scheme, market-makers will be incentivised to provide services, even during times of market stress such as dry years and low gas availability. The scheme could also lead to an increased diversity of market-makers and help to create a more robust understanding of future prices so participants can more confidently manage their price risk.
The consultation is open for four weeks and seeks feedback on the preferred level of service from the commercial scheme and the impact this has on the levy on industry participants.
The Authority will make an informed decision about the establishment of the commercial scheme supported by stakeholder feedback and work collectively with all key parties to support the best outcome for consumers.
If you would like to discuss the proposal in person please contact commercialmarketmaking@ea.govt.nz
You can read more about the decision to pursue commercial market making here. Details on the levy consultation are available below.
The Authority anticipates commercial market-making will commence in early-mid 2022.
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Latest market performance reviews available online
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The market performance quarterly reviews for October-December 2020 and January-March 2021 are available online and are being released concurrently to demonstrate how the system responds to change over time.
Like all markets, New Zealand’s electricity market is designed to reflect underlying supply conditions. The reviews highlight that prices were high in the first quarter of 2021 on the back of low inflows and limited supply of gas for generation, with the highest prices coinciding with low wind conditions in late February and late March 2021. First quarter wind and hydro generation were the lowest for the last seven years.
The reviews explain that prices were (and continue to be) high partly because thermal generation is less able to firm hydro supply due to the lack of gas. This means that when wind generation is low, fuelled thermal is fully dispatched. The marginal generation in these circumstances is hydro offer tranches that are aimed at conserving water and are therefore highly priced.
Uncovered open interest for long dated futures is very high suggesting that purchasers took advantage of low forward prices in 2020 to hedge long dated risk. However, in 2021, forward prices, including long dated futures, remain high.
In response to this increased market volatility and periods of high prices, the Authority is refocusing the review of the wholesale market to competition in the spot market and whether prices are being determined competitively. This will include looking into the structure, conduct and performance of the spot market since 2018. The review will be released in the third quarter of 2021.
Read the market performance quarterly reviews for October-December 2020 and January-March 2021 on our website.
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Genesis Energy Ltd settles following saves and winbacks Code breach
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Genesis Energy Limited (Genesis) has settled and offered compensation to retailers following breaches of the saves and winbacks clause of the Code.
As a losing retailer, Genesis contacted customers switching to a gaining retailer to try to persuade the customers to terminate the arrangement with the gaining retailer during the switch protected period.
Genesis incorrectly interpreted the effective date of new clause 11.15AA of the Code as 1 April 2020, rather than 31 March 2020 - the date the change came into effect.
On 31 March 2020, Genesis made approximately 224 potential winback attempts and 25 successful winbacks.
Retailers that lost customers because of this activity will be compensated $600 per customer by Genesis.
The agreed settlement is available to read online.
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Internal transfer pricing and profitability submissions published
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The Authority recently published an Internal transfer prices and segmented profitability reporting paper for consultation.
The proposal set out in this paper seeks to address recommendation D3 of the Final Report of the Electricity Price Review – ‘Make generator-retailers release information about the profitability of their retailing activities’.
The Authority called for submissions on the proposed internal transfer prices and segmented profitability reporting. Submissions closed 5pm, 18 May 2021. The Authority thanks those participants who have provided feedback on this proposal.
A few the submissions included a request for a cross-submission period. The Authority considers a cross submission consultation is unnecessary in this instance and would lead to an unwarranted delay in progress.
Submissions have now been published. Please note there is a technical error with the zip file, this will be resolved tomorrow. In the interim we recommend opening submissions individually.
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MDAG meeting papers from 31 May 2021 meeting published
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The meeting pack from the Market Development Advisory Group (MDAG) meeting held on 31 May 2021 has been published.
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Commercial market-making scheme: levy consultation
Ending: 22/06/2021 5pm
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Level 7, Harbour Tower, 2 Hunter Street, PO Box 10041, Wellington 6143, New Zealand
Tel: + 64 4 460 8860 Email: communications@ea.govt.nz
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