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Authority Releases Preliminary Decision On 9 August Undesirable Trading Situation Claim

The Authority has today published its preliminary decision on the claim that an undesirable trading situation (UTS) occurred on 9 August 2021.

The Authority considers no UTS occurred on 9 August 2021.

The preliminary decision follows the Authority’s investigation into the claim of an undesirable trading situation made by Haast Energy Trading Limited (Haast Energy) and Electric Kiwi Limited (Electric Kiwi) on 12 August 2021, and later joined by Flick Energy Limited (Flick Electric) and Switch Utilities Ltd (Vocus New Zealand).

The claim alleged the UTS was individually and jointly caused by Contact Energy and Genesis Energy for not offering additional generation on the night of 9 August 2021. The Authority has investigated all aspects of the UTS claim in relation to six trading periods on 9 August, together with the decisions by Transpower, as system operator, to issue a grid emergency notice at 6.47pm and to subsequently restore load.

"This investigation focused on three critical aspects of the 9 August event; the system operator’s decision to require lines companies to reduce demand by one percent at 6.47pm, Genesis Energy’s decision in the morning not to commit more generation based on the information available at the time and Contact Energy’s Taranaki Combined Cycle station (TCC)" says Sarah Gillies, General Manager Legal, Monitoring and Compliance at the Electricity Authority.

"The context in which the decisions were made is critical. On Monday 9 August 2021 the country faced the largest demand peak on record in response to one of the coldest nights this year. This was an extremely rare event and real time decisions were made in a difficult and uncertain situation. The Authority has assessed these decisions within that context.

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"Under the electricity Code, a UTS is an extraordinary event which threatens the confidence and/or integrity of the wholesale market. It’s a situation that cannot be resolved under any other part of the Code. The Authority’s preliminary decision is based on our analysis of what happened on 9 August within the legal framework for considering a UTS.

"Our preliminary view is there was no situation that threatened or may have threatened confidence in, or the integrity of, the wholesale market."

The Authority found that in retrospect, while some decisions could have been different, the decisions made by Contact Energy and Genesis Energy were reasonably open to them, given the context and the information available at the time.

The Authority found that the actions and decisions of the system operator, although not perfect in retrospect, were generally appropriate and proportionate to the risk of system failure that the system operator was seeking to prevent.

The preliminary decision document is on the Authority’s website and available for feedback now.

The Authority will continue to investigate what happened on 9 August 2021 through separate investigations of alleged breaches of the Code, including a possible breach of the new trading conduct rule. The Authority is also carrying out phase two of its review under section 16(1)(g) of the Electricity Industry Act 2010 (Act). The role of all generators in the 9 August event will be considered in detail.

Notes for editors

1.On 12 August 2021 the Authority received a claim alleging an undesirable trading situation (UTS) occurred on 9 August 2021. The claim was made by Haast Energy Trading Limited (Haast Energy) and Electric Kiwi Limited (Electric Kiwi). Two more parties later joined the claim - Flick Energy Limited (Flick Electric) and Switch Utilities Ltd (Vocus New Zealand). The claim relates to the trading periods 37-42 on 9 August 2021.

2.The claim alleged the UTS was individually and jointly caused by Contact Energy and Genesis Energy for not offering additional generation on the night of 9 August 2021. Genesis Energy did not offer Huntly Rankine Unit 4 (HLY4) to the market and Contact Energy did not run Taranaki Combined Cycle station (TCC).

3.An undesirable trading situation (UTS) in the electricity market is an extraordinary event which threatens, or may threaten confidence in, or the integrity of, the wholesale market that cannot be resolved under the Electricity Industry Participation Code 2010 (Code).

4.We investigate any potential undesirable trading situation and can take any action if we consider it appropriate. This could include suspending Code requirements and imposing new requirements on industry participants.

5.This is a preliminary decision open for consultation. Submissions are due by 3 February 2022.

6.The Authority’s preliminary views in this context are specific to the UTS investigation and the legal framework for considering a UTS. The Authority’s findings in the context of the UTS in no way implies that these decisions may not have amounted to a breach of other provisions in the Code.

7.The Authority received allegations of breaches of the Code in relation to 9 August, including the trading conduct regulations. The test for a UTS is separate from the compliance process. The Authority’s separate compliance enquiries are ongoing.

8.On Monday 9 August 2021 approximately 34,000 customers across New Zealand experienced an electricity cut without warning. The biggest impact was felt in the Waikato region with over 17,000 customers disconnected.

The Electricity Authority (Authority) is an independent Crown Entity with a statutory objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

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