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Investigation into electricity market welcome

Friday, 25th November 2005
Investigation into electricity market welcome

“All power consumers will welcome confirmation by the Commerce Commission this week that an investigation under Part II of the Commerce Act into the wholesale and retail electricity markets had commenced”, said the Executive Director of the Major Electricity Users’ Group Ralph Matthes.

Mr Matthes continued, “This investigation is very timely given the inconsistency between the Electricity Commission assessment that both current and forecast physical supply is and will be sufficient whereas current spot prices are at extreme levels.

“The Electricity Commission predicts that even if between now and next winter the worst inflow sequences over the last 72 years were to occur then there would be no risk of blackouts. The Commission models have been widely consulted on; use key forecast data sourced from generators and the models are sufficiently conservative to ensure the Commission takes a reasonably prudent risk adverse stance.

“Lake inflows this year have been relatively low and lake levels are below average. It is reasonable to expect spot prices would be above average to bring on higher cost thermal fuels. However current spot prices appear to significantly exceed the marginal price needed for those thermal fuels. “If there is little risk of blackouts, then the question arises whether generators are using market power to raise spot prices above that expected in a competitive market.

Hence our welcoming of the Commerce Commission investigation into the electricity market. “If spot prices are high due to abuse of market power this has the detrimental effect of manufacturers reducing output beyond the level expected in a competitive market. This results in a loss in GDP, undermines confidence in the market and reinforces the concern of consumers that the hedges they are offered inevitably include a margin reflecting the market power of suppliers,” concluded Mr Matthes.


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