The Electricity Authority will reverse unprecedentedly high electricity prices charged on March 26, saying actions by Genesis Energy threatened "to undermine confidence in, and ... damage the integrity and reputation of the wholesale electricity market."
However, its preliminary view is that Genesis was not guilty of "manipulative", "misleading" or "deceptive" conduct when it pushed spot market electricity prices above $20,800 per Megawatt hour at times during a national grid maintenance outage.
The prices only hit consumers in the upper North Island, and only those who were buying some of their electricity at spot, rather than on fixed price contracts. However, it represented a massive unexpected cost.
Genesis's state-owned competitors, Meridian Energy and MightyRiverPower, were caught out, and said the incident would have cost them tens of millions of dollars and materially hit their year-end returns.
Meridian put a $17 million figure on the loss earlier this week.
The actions also caught a wide range of Auckland businesses, schools, hospitals, commercial buildings and institutions, including the Auckland Museum, Television New Zealand, and Telecom, all of whom were risking a portion of their electricity costs on the spot market, where prices had been lower than commercial tariffs for months.
However, the EA will "reset" the March 26 prices to between $1500 and $3000 per Megawatt hour, to reflect "the cost to purchasers of alternative sources of supply or the cost of curtailing demand."
Genesis Energy said it would not immediately comment on the decision, which appears to let Meridian and MRP off the hook for not having taken out hedge contracts to cover the potential for high spot prices during the well-signalled outage.
Instead, it has ruled that market participants "had good reason to believe the exceptionally high offer prices at Huntly for those trading periods would not translate into market prices, until it was too late for them to take actions to avoid ... the prices."
However, critics of the Authority's first major decision since being formed last year under electricity reforms intended to improve the wholesale electricity market, fear the $1500 to $3000 per MWh price band will become a proxy upper limit for spot market prices, and will blunt incentives to hedge and build new generation - two key expectations of the Government's electricity reforms.