Electricity market regulator says spot price spike probe will take time

Electricity market regulator plays cards close to chest on spot prices complaint. Photo / 123RF

Market regulator the Electricity Authority is keeping schtum on how it might act to reduce market jitters arising from its investigation into a complaint that generation-retailers are abusing their market power to push up wholesale spot prices.

In its latest update on the claim by a group of independent electricity retailers, the EA said it understood the complaint and the EA's investigation may "cause uncertainty" in the market and that it was considering ways to reduce this effect "as soon as practicable".

The claim of "an undesirable trading situation" (UTS) was received by the EA on November 8.

But in response to a Herald inquiry as to what those ways could be, the EA said it would "provide updates as and when we can".

In a written response it said that it recognised its wide-ranging powers to correct a UTS could cause uncertainty for market participants.

But there was a lot of data to gather and analyse to ensure a robust decision.

The joint claim by independent retailers Electric Kiwi, Flick Energy, Pulse Energy, Switch Utilities and Vector challenges the EA's explanation for a big spike in wholesale spot prices as being due to a combination of low hydro lake levels and a supply-limiting fault at the Pohokura gas field, the country's biggest.

The ongoing Pohokura problem has caused generators to use more expensive forms of energy to generate electricity, which they say has forced up spot prices since September 15. The explanation has been backed by the EA.

The group wants the EA to reconsider its view.

The complainants claim the atypically high spot prices appear to be "partly attributable to the coordinated exercise of market power and a blatant disregard for disclosure obligations".

The result had been an undermining of confidence in the wholesale market that threatened the viability and competitiveness of independent electricity retailing for major users of wholesale electricity, the group said.

"The current conditions provide gentailers with an opportunity to strategically increase their offers, thereby driving up spot prices, and to attribute those increases to water and gas shortages."

The group acknowledged the supply squeeze could be expected to drive up spot prices significantly "but it is difficult to see how they could have driven them to the unprecedented levels seen in the last month".

The EA said its investigation was different from previous UTS probes because the alleged events spanned two months and may be ongoing. Other investigations had been into acute events which lasted just hours.

"For these reasons we anticipate that it may take some time to investigate the claims fully."

The claimants say they represent 86 per cent of household and industrial customers not served by vertically integrated retailers - gentailers. Vector is the country's largest network company, majority owned by consumer energy trust Entrust.

The complaint comes as the Government conducts a major review of New Zealand electricity prices. The panel heading the review recently published its first report on its findings.

Vector chief executive Simon Mackenzie said that report highlighted legitimate concerns that consumers were not yet benefitting from real competition or technology advancement.

Noting the top five gentailers in New Zealand now made up more than 90 per cent of the retail market, Mackenzie said the first report raised concerns about the wholesale electricity contract market and the market dominance of vertically-integrated companies which owned both generating and retailing operations.

A recent report by Auckland University economist Dr Stephen Poletti concluded that in the seven years from 2010 to 2016, power generators pocketed an extra $5.4 billion in profits over and above what they would have if the wholesale electricity market "was truly competitive".

Poletti's report was partly funded by Vector.

It noted New Zealand's electricity market is one of the least regulated in the world.

"The extent of market power in the ... wholesale market is clearly a controversial topic...it is timely to re-examine this issue," said the report.