Review of spot market trading conduct provisions

The Authority is introducing a new trading conduct rule from 30 June 2021.

The new rule will replace the current high standard of trading conduct provisions (clauses 13.5A and 13.5B and the definition of ‘pivotal’) in the Electricity Industry Participation Code 2010.

Under the new rule, generators and ancillary service agents are required to ensure any offers they make in the wholesale electricity spot market are consistent with offers they would have made in a market where no party could exercise significant market power. The new rule can be read in the decision paper below.

The new rule is the result of a comprehensive review by the Authority and the Market Development Advisory Group. The review involved multiple consultations with interested parties as well as the use of a pre-eminent expert panel to test a proposed rule. This resulted in a thorough process in which key issues were aired and discussed by stakeholders and legal experts.

The Authority will actively monitor the new rule as part of an enhanced monitoring, enforcement and compliance regime. Our monitoring approach has been published to support understanding of the new rule.

The Market Development Advisory Group (MDAG) has presented their final recommendations on the Review of Trading Conduct Provisions to the Authority. The Authority Board has accepted all of MDAG’s recommendations.

We are working at pace to make the changes and we will consult on the proposed trading conduct rule early in the new year.

During July and August 2020, the MDAG ran an evaluation panels process to test how their proposed Code provision might be interpreted and applied to hypothetical case studies, with expert panellists acting as proxies for the Rulings Panel and Courts.

Two panels of three members were formed, based on their legal and economic experience. The panels were asked to apply the existing and proposed provisions to a variety of case studies, and provide insights on the range of likely interpretations and the degree to which unintended applications of the proposed Code were likely to occur.

The terms of reference for the panels, the case studies they tested and their findings can be found below.

The MDAG will be holding bilateral meetings with interested stakeholders to feedback on their lessons from the High Standard of Trading Conduct Evaluation Panels process.

If you would like to participate in a bilateral meeting, please email MDAG@ea.govt.nz with subject: High Standard of Trading Conduct Evaluation Panel bilateral meeting request by 5pm on 18 September. Meetings will be held from 21 September 2020 onwards.

The Market Development Advisory Group (MDAG) is holding a briefing on 30 July 2019 to update stakeholders on its review of the trading conduct provisions in the Electricity Industry Participation Code. To help interested parties understand the topics that will be discussed at the briefing, MDAG has published a briefing pack.

The current focus of the MDAG’s review of the trading conduct provisions is whether the current provisions of the Code to address behaviour by ‘pivotal’ generators and ancillary service agents promote the Authority’s statutory objective. (‘Pivotal’ is defined in the Code but, in simple terms, a generator or ancillary service agent is pivotal if demand would not be met without supply from their plant.) 

The briefing will be about MDAG’s work on pivotal pricing, which is its initial area of focus. Later this year, MDAG will issue a formal discussion paper inviting submissions which will be followed by a final recommendations report from MDAG to the Authority’s Board.

For more information about the event and to register visit the event page.