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Lack Of Competitive Pressure Leads To An Undesirable Trading Situation

The Electricity Authority’s Board has concluded its investigation of the undesirable trading situation (UTS) claim made by Haast Energy Trading, Ecotricity, Electric Kiwi, Flick Energy, Oji Fibre, Pulse Energy Alliance and Vocus (the ‘claimants’) in late December 2019.

The Authority has found there was a UTS between 3 December and 27 December 2019.

James Stevenson-Wallace, Chief Executive of the Authority says, "The Authority has investigated all aspects of the claim, carefully considered all submissions and concluded there was an undesirable trading situation between 3 December 2019 and 27 December 2019."

"What we found in the wholesale market during the UTS period were far from normal outcomes given the conditions at the time.

"The operation of the market during the UTS period was very unusual. We experienced an extreme weather event in the South Island with severe rainfall and lake levels over and above the maximum. Generators were faced with record-level inflows, resource and operational constraints. At the same time North Island generation was aiming to conserve fuel ahead of an impending gas and HVDC outage.

"We’ve called this a confluence of factors - a group of factors that when combined were unusual and unpredictable. What we didn’t see is a normal market response - lower electricity spot prices driven by lower offers from those generators spilling excess water.

"There was a lack of competitive pressure which meant prices remained relatively high despite an abundant supply of water and no increased demand during the period. Water was wasted when it could have been used to generate power.

"The magnitude and duration of the event was such that confidence in the market may have been threatened. That’s the UTS test and that’s what we found.

The decision paper documents the Authority’s analysis and the framework used to reach the decision. It also responds to the key issues raised in submissions.

"This has not been an easy process - the information and analysis are complex, and the consultation process has given parties an opportunity to raise their concerns and counter arguments.

"We’ve had a lot to consider but we are confident in our analysis and decision.

This is the right call for New Zealand consumers.

"New Zealand consumers have a reliable and secure electricity supply. The electricity market manages a careful balance of supply and demand and most of the time, the price of electricity reflects the conditions of the time. It didn’t between 3 and 27 December 2019 and that’s why we’ve found a UTS, for which we will propose actions to correct early next year.

The Authority will publish the proposed actions to correct in February 2021.

The UTS process is not necessarily about attributing blame - that’s for our Compliance process to determine.

The Authority has investigations underway in response to other allegations made by the claimants. We expect to conclude our investigations in early 2021.

The Authority’s decision document, previous consultation documents and submissions are on our website - https://www.ea.govt.nz/code-and-compliance/uts/undesirable-trading-situations-decisions/10-november-2019/

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