Westpac second bank to lodge complaint with electricity regulator over Genesis Energy's 'Big Saturday'

Westpac second bank to lodge complaint with electricity regulator over Genesis Energy's 'Big Saturday'

By Gareth Vaughan

Westpac has become the second bank, after ASB, to lodge a complaint with the Electricity Authority over the huge spike in upper North Island wholesale electricity prices on Saturday March 26.

In its complaint Westpac says the financial hit it faces is "significant."

The surge in prices, to more than 200 times normal levels, took place while Transpower was undertaking planned maintenance between Auckland and the Waikato, which significantly reduced the transmission capacity from the Waikato region to Auckland. Summing up the line taken by many complainants, Meridian Energy says the Huntly power station, owned by its fellow state owned generator and retailer Genesis Energy, was required to support load in the upper North Island and Genesis could "effectively name its price."

Meridian and another state owned electricity company, Mighty River Power who were both buying from Genesis to serve their customers during the maintenance, say the price spike - if allowed to stand - will hit their combined earnings by up to NZ$40 million.

Unprecedented prices

Spot market prices rose to what the Electricity Authority describes as "historically high" interim levels levels of between NZ$19,000 and NZ$20,000 mega watts per hour (MWh) from normal prices of about NZ$100 MWh. A total of 25 complaints from companies, which combined, say the price spike cost them tens of millions of dollars, have now been lodged with the Electricity Authority. The full list of complaints is on the Electricity Authority's website here.

The regulator has launched an investigation into whether an Undesirable Trading Situation (UTS) occurred plus a separate market performance investigation. See more here. It has ordered the delay of final March 26 prices while the UTS claim is investigated.

For its part Genesis denies it acted unreasonably during the "well-signalled" transmission outage. Genesis notes it offered customers the opportunity to hedge their risk, says it wasn't Genesis’ role to cover and pay for the spot market risk some market participants chose to take, and it has high operating costs and "will recover those costs when the opportunity arises."

However, Westpac says this type of event leads it to question future levels of spot price exposure.

"Had we been aware of the possible level of prices we would have taken actions to reduce our usage and/or use our own generation," Westpac's Dean Adams writes in the bank's complaint.

"While we accept that the outage was known of in advance, the level of prices could not have been predicted and is outside of any reasonable forecast. We were not therefore in a position to mitigate the costs and this creates an environment which deters consumers from assisting the market place by taking spot exposure with the objective of offering demand side management where available," Adams adds.

If the Electricity Authority decides a UTS happened, it could overturn the prices charged on March 26 and direct trades made that day be settled at different final prices.

Air New Zealand's 'urgent action'

In another complaint Air New Zealand says on top of the financial impact to the national carrier, it took "urgent action" to avoid exposure to operational business continuity risk.

"An Air NZ supplier concerned about the impact to it of the power price had planned mitigation action that while dealing with the financial aspect would have exposed Air New Zealand to operational business continuity risk," Mandy Varney writes in the airline's complaint.

"Air NZ management took urgent action to prevent this from happening, however feel the situation can be avoided altogether in future through appropriate actions being taken in this instance by the Electricity Authority."

Varney also says if the March 26 pricing is allowed to stand, it will inevitably impact on the overall market with future pricing for all consumers being higher than necessary.

"This is clearly not in the public interest." 

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