Rules Committee Accept Winter Review Findings

MEDIA RELEASE - NZEM Rules Committee 12 December 2001

Rules Committee Accept Winter Review Findings

The New Zealand Electricity Market (NZEM) welcomes the direction the Government wishes the electricity industry to take as a result of the review into the events of winter 2001 as they relate to electricity.

The governing body of NZEM, the Rules Committee, concedes that some aspects of the market are immature. However, it believes the Government's apprehensions will be eased by the work currently being undertaken through NZEM and is happy the Government believes the market capable of self-correction.

"I was especially pleased to hear the Government acknowledge the significant progress the electricity industry has made towards attaining the objectives set out in last December's policy statement," said Toby Stevenson, Rules Committee Chairman.

"NZEM noted the increased sense of urgency conveyed in yesterday's announcement and would like to reassure the Minister that it has been moving with alacrity to address the issues raised since before the winter review began," Mr Stevenson continued.

Concerns expressed in the winter review that relate to NZEM include the:
Disclosure of generator offer prices into the market; ·
Promotion of demand-side participation; ·
Development of real time spot market pricing; and ·
Development of financial instruments to manage transmission risk.

Disclosure of Generator Offers The release of generator offers is presently before an NZEM Working Group, which is well advanced on its work to finalise a mechanism that will allow the publication of bids and offers.

"The concern for NZEM is to increase transparency around bidding and offering strategies, without lessening competitive behaviour or introducing the potential for collusion," reported Mr. Stevenson. "We are confident this issue can be progressed within the time limits the Minister has requested."

Many believe making this trading behaviour transparent will provide more information about price trends to purchasers of electricity. The Working Group is expected to report early in the New Year, and a Rules Committee decision on this issue will follow soon after.

Demand-Side Management NZEM is pursuing an aggressive workload that should see increased demand-side management. This would provide purchasers with a better ability to react to and influence price.

"Members of an NZEM Working Group who represent the demand side are currently working with Transpower, as the operator of the national grid, to identify what measures will provide true benefits to the demand side," said Mr Stevenson.

"Having established what changes to the NZEM rules might facilitate demand side management the group will continue to work with Transpower to clarify what can be implemented without impacting on the security of the grid," he continued.

Real Time Pricing A large amount of design work around the introduction of a "real time" market (where electricity is priced in five minute 'blocks' rather than the current half hour blocks) is already complete.

Real time pricing is designed to allow generators and purchasers to make decisions based on more accurate and timely information.

"NZEM is currently assessing the benefits of introducing a five minute price against the considerable cost of introducing this facility," Mr. Stevenson said. "If the benefit of introducing design changes is clear they will be introduced."

The benefits of this design change will be judged based on a combination of the wishes of the demand side, the costs, the practicability of the final design and progress on other demand side management initiatives.

Managing Transmission Risk "Although it is not strictly within NZEM's bailiwick, the Rules Committee is doing everything it can to facilitate the introduction of financial instruments that will better manage transmission risk," commented Mr. Stevenson. Transpower have indicated that they will introduce a financial transmission right product in 2002.

NZEM will shortly report in more depth on the progress of these matters to the Minister of Energy.

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For attributable comments, contact Toby Stevenson, Rules Committee Chairman, phone +64 4 499-4001

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