Consultations

The Authority has released an issues paper that sets out initial observations from the review of the current Financial Transmission Rights (FTR) and Loss and Constraint Excess (LCE) allocation policy settings.

The Authority decided to review the FTR and LCE policy settings because there are concerns that FTRs are not effectively addressing the problems they were created to solve.

The Authority seeks feedback from stakeholders on 11 observations it has made related to the functioning of the FTR market. The Authority also seeks feedback from market participants and other stakeholders on the existing FTR and LCE policy settings, with a particular focus on the effectiveness of the FTR market in managing locational price risk for market participants.

Your feedback will assist the Authority to define any issues and opportunities which require further consideration. A robust problem or opportunity definition will assist with developing possible interventions (if any) to provide maximum benefit to consumers, in line with the Authority’s statutory objective.

The FTR issues paper does not impact on the Authority’s other LCE work programme, specifically the Settlement Residual Allocation Methodology (SRAM).

If you would like to discuss the Issues paper, please contact wholesaleconsultation@ea.govt.nz.

The Authority has released a consultation paper for an amendment to the Electricity Industry Participation Code 2010 (Code) in relation to the implementation of a commercial market-making scheme alongside the existing regulated market-making scheme.

The Authority decided to pursue an enduring market-making approach in 2020 and continues to implement the first iteration of this decision throughout 2022.

The consultation seeks feedback on the proposed Code amendment to market-making parameters and the impact this will have on industry participants.

Regulated and commercial market makers will require to operate under the same market-making parameters to ensure a successful market-making scheme.

All market makers will operate with similar service levels, leading to efficient outcomes for futures market participants and, ultimately, long term benefits for New Zealand electricity consumers.

A previous consultation held for increasing the Electricity Industry Levy to support the implementation of a commercial market-making scheme can be found here.

The Authority will make an informed decision about amending the Code to introduce the first iteration of commercial providers of market-making. The Authority’s decision will be based on feedback and will work collectively with all key parties to support the best outcome for consumers.

If you would like to discuss the proposal, please contact WholesaleConsultation@ea.govt.nz

The Authority anticipates that the first iteration of commercial market-making will commence in mid-2022.

Any changes made to the Code to deliver the commercial market-making scheme will not come into effect until the scheme has commenced.

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 consultation seeks feedback on the preferred level of service from the commercial scheme and the impact this has on the levy on industry participants. The levy calculator, available here and below, can be used to understand what changes to volume and bid-ask spread mean for the cost of the scheme, and subsequently, participant’s levy.

The current cost of market-making services to consumers is not visible, and the level of services provided may not be efficient (ie, they may be either too expensive or may be at an insufficient level). The Authority wants the costs of market-making to be more transparent and for those who benefit from the services to pay for them. This will help ensure the appropriate level of service is provided to the electricity markets.

The Authority decided to pursue a commercial market-making approach in 2020 and we continue to implement this decision throughout 2021.

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 Authority will make an informed decision about the establishment of the commercial scheme based on 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

The Authority anticipates commercial market-making will commence in early-mid 2022. Any changes made to the levy to deliver the commercial scheme will not come into effect until the scheme is established.

Levy calculator 

Click here to access the levy calculator on Tableau

We are consulting on our proposal to amend the Code to insert a permanent mandatory market making backstop.

We are consulting on our proposal to secure access to industry participants’ hedging data and invite feedback from stakeholders on our planned approach.

The exchange traded New Zealand electricity futures market performs two key functions: participants use it directly and indirectly to manage their spot price risk, and participants and other interested parties use the forward price curve the futures market creates to inform a wide range of investment and operational decisions. These market functions promote the long-term interests of consumers by enabling efficient decisions and fostering competition.

Electricity market participants, other stakeholders, and the Authority have expressed significant concerns about the efficiency of prices, and the ease with which deals can be struck, particularly since the Pohokura gas field outage in spring 2018.

The Authority is reviewing enduring market making arrangements. Our review takes an objective and evidence-based approach.

This consultation paper seeks feedback on the approaches the Authority should consider for an enduring solution and any trade-offs that need to be made under each possible approach.

The consultation paper is supported by graphs and analysis on a separate webpage and An introduction to market making. 

For further information email Hme.feedback@ea.govt.nz

The exchange traded New Zealand electricity futures market performs two key functions: participants use it directly and indirectly to manage their spot price risk, and participants and other interested parties use the forward price curve the futures market creates to inform a wide range of investment and operational decisions. These market functions promote the long-term interests of consumers by enabling efficient decisions and fostering competition.

Electricity market participants, other stakeholders, and the Authority have expressed significant concerns about the efficiency of prices, and the ease with which deals can be struck, particularly since the Pohokura gas field outage in spring 2018.

The Authority is reviewing enduring market making arrangements. Our review will take an objective and evidence-based approach to understand how the futures market and market making arrangements have performed – this is a necessary step to ensure any intervention builds confidence in the market, enhances its performance, and provides long-term benefit to consumers.

This discussion paper seeks feedback on the Authority’s initial analysis of problems and opportunities, and seeks information and evidence from stakeholders to support further analysis.

The discussion paper is supported by graphs and analysis on a separate webpage. 

Efficient clearing and settlement arrangements play an important role in efficient markets.

Currently, there are separate clearing and settlement arrangements for exchange-traded products, and other wholesale market transactions. There is an inherent inefficiency for participants in having to meet two sets of obligations to clear and settle transactions that often relate to offsetting risks. Reducing this inefficiency could have flow-on benefits for retail competition and hedge market development.

We have identified a range of development options that, in theory, could better integrate the arrangements for clearing and settling exchange-traded products and other wholesale market transactions. We have evaluated if these developments are likely to deliver long-term consumer benefits.

We are seeking information from stakeholders that might affect our preliminary evaluation.

We are seeking feedback on 12 options intended to enhance the operation of the FTR market. We do not expect that all of the options discussed in the issues and options paper will be introduced, as some of them may not deliver a net benefit to the market, and there are a number which are alternatives to others presented.

Eight of the 12 options are matters which could be further developed by our service providers (FTR manager and clearing manager), should their introduction be found to deliver a net benefit to the market. The possible development and implementation of the other four options would involve the Authority in design and implementation work.

 The Hedge Market Development project is a high priority project that supports our statutory objective by encouraging competition in both the wholesale and retail markets.

As part of this project we have now published a consultation paper on proposed enhancements to the trading of hedge market products, with an emphasis on developing the trading of ASX exchange traded products.

We are seeking submissions to inform the development of a further consultation paper, which we expect to publish in late 2015, that will make firm proposals and include a detailed CBA for the enhanced trading of hedge products.

Proposals covered in this consultation paper include:

• encouraging greater liquidity in existing ASX baseload products
• the introduction of, and the promotion of, trading in ASX half-hourly settled price cap products
• publication of market-making metrics
• creating firmer market-making arrangements for existing products.

Submissions should be submitted by 5pm on Tuesday, 21 July 2015.

A deep and competitive hedge market is an essential element of an efficient and competitive electricity market, because it allows generators, retailers and customers to better manage the risks arising from the spot market, and provides important information about likely forward electricity prices.

The Authority's Wholesale Advisory Group (WAG) has been engaged in a detailed investigation, to determine if current hedge market arrangements allow participants to effectively manage the risks they face in the spot market. In particular, the WAG has sought to determine:

• whether hedge prices are efficient
• whether hedge markets facilitate meaningful competition in wholesale and retail markets
• whether there are (avoidable) non-price barriers that prevent participants from meeting their risk management needs through hedge markets.

To help inform the WAG’s views, Energy Link was commissioned to perform an independent study into the efficiency of hedge prices. In addition, at the WAG’s invitation, a number of participants provided presentations in which they discussed their experiences with the hedge market along with suggested initiatives to improve it.

The WAG has produced this discussion paper summarising the findings of its investigation, the Energy Link study, and the participant presentations.

The WAG is still to form a view on the materiality of the issues, and where development initiatives are best targeted. The group therefore seeks further information from the industry, and in particular, seeks examples and evidence that support the issues, and that might rationalise potential development initiatives.

The WAG will be holding a briefing in support of its discussion paper during the consultation period. Details on this briefing are to come.

Note 1: Inadvertently, this consultation page and the consultation paper both mentioned Wednesday 29 August 2011 as the end date. As a result, submissions will be accepted up to 5pm Wednesday 31 August 2011.

Note 2: The letters referred to in the footer on page 18 of the consultation paper can be found on the Hedge market development page. For convenience, they can also now be found below.

This consultation paper presents and seeks feedback on the Electricity Authority's proposals aimed at improving the opportunities to use financial hedge contracts to manage the price risks of movements in New Zealand electricity prices.

As an alternative to the proposal, draft Code amendments have been set out that could be made in order to provide for an active hedge market. Stakeholder comments are sought on the proposal and the Code amendments, although Code amendments are not the Authority's preferred approach at this stage.

In late 2004, the Electricity Commission (Commission) formed the Hedge Market Development Steering Group (HMDSG) to “provide advice to the Commission on the development and implementation of a transparent and liquid electricity hedge market.”

Since its formation, the HMDSG has considered in detail the issues related to price risk management that affect the New Zealand electricity market. The HMDSG has now finalised an Overview Paper and a companion Technical Paper for the Commission. These reports outline the work the HMDSG has undertaken and conclusions it has reached. The reports also cover the HMDSG's recommendations to the Commission on the initiatives that should be implemented and the procedures and timelines with which this should be done.

The Technical Paper is necessarily detailed and long. To facilitate receiving feedback from stakeholders and wider public understanding and involvement the Commission has simultaneously released an Overview Paper. It summarises the recommendations and analysis in the Technical Paper for the benefit of those without the time or inclination to study the full version. These papers also include a number of questions to be considered by parties that are interested in making submissions.

The Commission believes the papers provide a useful platform on which to seek wider industry views. The Commission would like to receive submissions on the HMDSG's analysis and recommendations before reaching its own conclusions. To assist with this process, the Commission also requests that submitters respond to the six questions included in the Commission's Foreword.