'Electricity market isn't liquid enough'

NZ's electricity market isn't deep and liquid enough to cater for hedging, PM Key says in response to Genesis price spike

5th Apr 11, 8:34am by Alex Tarrant

NZ's electricity market isn't deep and liquid enough to cater for hedging, PM Key says in response to Genesis price spike

Prime Minister John Key says it’s unfortunate New Zealand does not have a deep and liquid wholesale energy market as private businesses and other electricity companies reel from a price spike by Genesis Energy that raked in NZ$56 million in seven hours.

Genesis increased wholesale electricity prices by more than 200 times the normal rate for seven hours just over a week ago, after Transpower announced it was shutting its lines into Auckland for maintenance.

The spike meant Mighty River Power had to pay fellow SOE Genesis NZ$25 million, Meridian paid NZ$12 million and Powershop paid NZ$1.7 million to access wholesale electricity for Auckland during that time.

See more in Powershop CEO Ali Sargent’s piece here.

Key said previously-announced energy market reforms would hopefully help the situation, but that everyone needed to acknowledge it was a highly illiquid market.

"It would be great if we had a liquid and deep market for hedging, but the reality is we don’t,” Key said at his regular post-cabinet press conference on Monday.

Genesis has rejected criticism of its actions. See more here in Gareth Vaughan's March 30 article.

See Gareth Vaughan's original article on Meridian and Mighty River Power protesting at the price spike.

See more here from Gareth Vaughan on how ASB and various telcos have warned about the effects on their profits.

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7 Comments

by Wolly | 5th Apr 11, 8:51am 1301950290

Wooopeeee.. big fat bonuses coming to the bosses at genesis....

by childofthesun | 5th Apr 11, 9:02am 1301950939

Mr Smiley Wavey has just given another wet, insipid response to an issue of great importance to the NZ economy. Every generator in the country who just happens to be on the right side of an outage and in a position to abuse market power just got the green light to extract whatever price they want from the market. Over to you, Electricity Authority.

by SimonD | 5th Apr 11, 9:33am 1301952816

c'mon NZ this is so mickey mouse it's unreal!

by dosser | 5th Apr 11, 10:00am 1301954427

Scarcely believable response from a prime minister - who does he think he gets his mandate from? Not to mention the disingenuous Genesis defence that no retail customers were affected - the Genesis clients who were rorted will all pass the cost on to their Mum & Dad customers.

by meh | 5th Apr 11, 10:53am 1301957591

I have to ask why we have 3 SOE's competing against each other. Why not merge the whole lot and save on overheads/administration costs. Yes they become a monopoly but with effective regulation that shouldn't be an issue if the goal is the benefit of the country as a whole.

by steven | 5th Apr 11, 11:05am 1301958317

I assume to give some market competition day to day.....it might reduce admin but is the admin a biggee? suspect not. Mainly I think regulation isnt usually that effective, not to micro manage....macro manage, yes....IMHO. Companies will always find small loopholes and expolit them quickly, regulation is way to slow to do that....several SOEs in the market allows the competiton to follow suit.....and the profit comes back tot he Govn.

I suppose the Q to ask is, is the present system doing a bad job overall, I would have said ni, its pretty good. So I'd be reluctant to think huge changes will do better....sure fix that Genesis exploit....maybe make some sort of monthly moving average x say 2 or something as a limit. Mind you Genesis is saddled with Huntley which if it was private it would simply get rid of I assume....so it has to be compensated to a degree....

regards

by meh | 5th Apr 11, 11:39am 1301960398

I think there's as much bloated management/unproductive advisors and analysts in 3 SOE's as there is in other areas of the public sector. With the "waffle" cut out would the dividend return to the government not increase as a result?

Is there real competition - electricity is generated by various means and Huntly must be extremely cost inefficient. There doesn't seem to be a problem with generating enough electricity to meet demand only a problem with transmitting that supply around the country. This is meant to be corrected isn't it?

Why the need for profit? If the consumer spends less on essential services does that not free up disposable income for savings/investment thereby benefiting the country as a whole? Generate enough income to cover operating costs and the government has other options available for infrastructure/capital investment. Private companies allegedly manage better to generate profits but at what cost - look at Telecom, the railways, BNZ.

I'm only applying this to essential services and I don't profess to know a hell of a lot about these industries but I'm just thinking outside the box rather than following the same policies/strategies of the past that in reality haven't really got us anywhere.