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Electricity Authority Puts Potential Approaches For An Enduring Market Making Solution On The Table

The Authority puts potential approaches for an enduring market making solution on the table for consultation

The Electricity Authority has released a consultation paper outlining approaches to an enduring market making solution for the New Zealand electricity market.

The Authority is reviewing the current market making arrangements to design and implement a sustainable solution for the long-term benefit of consumers.

The paper identifies six possible approaches to market making and sets out criteria for assessing each approach.

“It is clear through our ongoing conversations with stakeholders the sector has a broad range of views on the most appropriate long-term approach to market making that maximise the long-term benefits to consumers. The views, analysis and feedback from stakeholders have had a significant influence over the direction of this project,” says James Stevenson-Wallace, Chief Executive at the Authority.

“This paper presents a range of possible approaches to improving hedge market performance for stakeholders to review and provide feedback.”

Information provided to the Authority by stakeholders in response to a discussion paper late last year identified two broad issues and opportunities for the industry; a lack of confidence in market making and price formation on the ASX market, and increasing the reliability of market making services.

“We believe the approaches offered in this paper address the issues of confidence and reliability. Consumer interests are always at the centre of our decision making and we will recommend the approach that delivers the greatest long-term benefit to consumers,” says Stevenson-Wallace.

The consultation paper details a range of approaches to ensure market making services are provided. The approaches sit along a spectrum of regulatory intervention; from a voluntary arrangement between the ASX and market makers, a commercial arrangement between the Electricity Authority and market makers, a regulatory approach requiring parties to market make, and a combination of all approaches.

The Authority also identified five key trade-offs that need to be made for each approach and is proposing to use these in its assessment. The key trade-offs were determined after considering the issues and opportunities with market making, the potential interventions that could address them, and the characteristics of a successful solution.

The trade-offs include the possibility to increase the number and diversity of market makers, involve markets in the design of market making services, how to allocate the costs of market making and consequences of non-performance.

“We are particularly interested in feedback on whether the approaches and trade-offs identified in the paper are the most relevant to support a decision for the long-term benefit of consumers. There might be other approaches available to enhance market making, and there may be additional important criteria for stakeholders. We want feedback on both,” says Stevenson-Wallace.

The paper Ensuring market making arrangements are fit-for-purpose over time (607KB, PDF) is available on the Authority’s website.

Consultation will be open for eight weeks from 21 April until 16 June. The consultation period has been extended to allow stakeholders more time to engage with the paper while New Zealand is subject to Covid-19 disruptions.

The Authority Board will decide on the high-level approach it will adopt for market making in August 2020.

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