No one asked us for a hedge contract: Contact

Photo / Christine Cornege
Photo / Christine Cornege

Contact Energy says it would have offered hedge contracts to cover last Saturday's massive wholesale electricity spot market price spike, but it got no approaches from generators now complaining at a massive surge in prices that lasted several hours.

State-owned Meridian Energy and MightyRiverPower have both complained to the Electricity Authority about rival Genesis Energy seeking prices up to $20,000 per Megawatt hour during a planned transmission system outage for maintenance work.

Long-time market observers say that price is perhaps 20 times higher than has ever been seen for a planned transmission outage where there was no underlying security of supply problem.

However, neither Contact nor the other private sector generator, TrustPower, will be lodging "undesirable trading situation complaints", and Contact says that it had hedge cover to offer but received no inquiries.

MRP's complaint says it sought hedge cover from Genesis last Friday, when it got the first indication the owner of the ageing and commercially challenging Huntly power station was preparing to play hardball.

Exact prices have not been revealed, but market observers say Genesis was seeking hedge contracts at levels several times higher than the $1,000 per MWh or so that might commonly prevail during such outages.

MRP rejected those offers, assumed Genesis was the only possible provider of hedge cover, and took no further action when price projections for Saturday settled on Friday afternoon to manageable levels of around $160 per MWh.

Meridian made no approaches to the hedge market for the well-signalled event, because maintenance outages on the national grid occur constantly and have never been treated the way Genesis treated last weekend's, Neal Barclay, Meridian's general manager, markets and production, said.

"This hedge issue is a red herring," said Barclay.

"The hedge markets in this country are set up to allow management of medium and longer term price volatility.

"There is no active market for transmission outages," he said.

"If you had to hedge for every Transpower outage, and there are pages of them every week, the cost of that would be added into the industry, which would drive wholesale costs up."

Even if Meridian had spotted the issue, there was no way businesses buying some of their power from the spot market would have seen it coming, Barclay said.

Among such consumers to join the complaints to the EA are ASB Bank and the Museum of Auckland, both of which were buying a proportion of their electricity from the wholesale spot market.

Genesis chief executive Albert Brantley is understood to have received calls last Saturday from counterparts in the industry to check he was aware of what was happening, and confirmed that he was.

Genesis has been relatively unsuccessful in pushing other market players to buy hedge contracts for Huntly, which it says are the only way the 1,000MW plant can be kept available as backstop supply during periods of electricity shortage.

Brantley recently said Genesis believes this failure to hedge generation price risk more effectively is evidence the wholesale market is "immature".

However, Barclay said the issue went to the need in New Zealand for a clearer code of conduct that would allow events like routine maintenance outages to occur without sparking events like Saturday's.

"The EA are onto this, but they may decide they want to move a bit more quickly on it now."

The Authority may comment on the issue later today.

- BusinessDesk

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