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Rising Wholesale Power Prices Concern Major Users’

“Major electricity users’ are concerned that the current high prices for electricity may lead to their production being curtailed unnecessarily”, according to Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG).

“Spot electricity prices for the first 13 days of June have jumped by over 500% to average over 21 c/kWh. This compares with an average price over May of about 4 c/kWh. In June last year prices averaged just under 4 c/kWh. At the same time there has been a shortage and in some cases a complete absence of competitively priced hedge products available this year thus a restriction for purchasers to manage the risk of high spot prices.

MEUG accepts that there is lower than average hydro storage levels and extremely low inflows; and therefore understand that hydro generators will place a high value on conserving water to see through the rest of the winter. However the major generator involved, Meridian Energy and the national grid operator Transpower have been assuring the industry over the last week that we are not facing a repeat of the 1992 hydro crisis and therefore all consumers are entitled to ask why have prices skyrocketed.

If there is no real risk of us running out of water then the high prices must reflect some opportunistic behaviour by generators or worse the abuse of market power by one or more of the generators.

Therefore the inquiry by the Market Surveillance Committee of the NZEM is welcomed by MEUG. However it will have to go further than just inquire into the offers and behaviour of the generator parties within NZEM. In our opinion it will also need to release or order the release after each trading period of all offers into the spot market by generators so that consumers can see for themselves whether any gaming of the market has occurred, not just for the current situation but for the future also, stated Mr Matthes.

If there is a genuine shortage of generating capacity or aggregate demand has grown faster than expected and the cold snap is putting serious pressure on all generators then major users’ will look at ways to reduce their usage of electricity. It is hoped that this will not necessitate reducing production but major users’ cannot continue to remain internationally competitive when a key manufacturing input increases by 500%.

MEUG would like to think that if there is a real shortage of power that retailers who are also being impacted would support a conservation campaign as they did in 1992. After all retailers are supposed to provide service to their customers not simply pass on price risk resulting from their business management strategy. It is all to easy for retailers to cry foul against the generators and then simply pass the additional cost onto their customers. It is time retailers accepted their responsibility for energy management initiatives and now would be a good time to start.

If the current prices reflect any form of market failure or abuse of market power it is important that this be identified as soon as possible and the Market Surveillance Committee Inquiry will play a role in this, but equally importantly we seek release of all generator offers after each trading period to ensure consumers have confidence in the integrity of the market, concluded Mr Matthes.

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