State owned enterprise Genesis Energy has appealed a regulatory decision overturning its charging of wholesale electricity prices more than 200 times above normal levels in the upper North Island during Transpower maintenance on Saturday, March 26.
Contact Energy and, interest.co.nz understands, Todd Energy have also appealed the ruling.
Genesis says it has lodged a High Court appeal of the Electricity Authority’s decision to declare an Undesirable Trading Situation (UTS), which saw prices of NZ$19,000 to NZ$20,000 per megawatt hour reset to NZ$3,000.
In a statement Jenny Shipley, Genesis' chairwoman, said the company's decision to appeal was based on ensuring that Genesis and the wider market could have assurance about the nature and scope of the market rules in the future, given the "uncertainty" created by the Authority’s decision.
"Investment and regulatory certainty was the focus rather than any desire to reset a higher price," Shipley said.
On March 26 upper North Island wholesale electricity prices, in a market with no price ceiling or floor, spiked to more than 200 times normal levels during scheduled Transpower maintenance between the Waikato and Auckland. A total of 35 entities including retailer Powershop , its parent Meridian Energy, Mighty River Power, Air New Zealand, ASB, Westpac and the Auckland Museum, complained to the Electricity Authority.
They blamed Genesis, earmarked by the National-led government for a partial privatisation after November's election, which they say had the market cornered during the outage through its Huntly power station and ruthlessly exploited this market power through unprecedented high prices.
Regulator ordered resetting of prices; Stopped short of saying Genesis had manipulated the market
The Electricity Authority has ruled that an Undesirable Trading Situation occurred and ordered prices to be reset no higher than NZ$3,000 per megawatt hour, way down on the NZ$19,000 to NZ$20,000 Genesis charged between 10:30am and 5:30pm on March 26 for Hamilton and regions north of Hamilton. However, the Electricity Authority said it didn't believe Genesis' behaviour materially breached the law, or that the SOE engaged in manipulative or attempted manipulative trading activity.
Genesis' CEO Albert Brantley said there was a clear principle at stake.
"We believe the Undesirable Trading Situation decision was wrong in principle and wrong in law," Brantley said.
"The Authority’s decision alters the ground rules going forward for all market participants in a significant but uncertain way, and the decision lowers the bar for declaring a UTS. The UTS decision, if allowed to stand, would simply reward businesses who make poor commercial decisions about exposure to the wholesale spot prices, while at the same time penalising a number of supply and demand side participants who take prudent action in response to market signals to manage their commercial risks.”
Brantley added that Genesis considers a finding that "normal and appropriate" market conduct can be considered a UTS undermines market certainty.
Meanwhile, Contact Energy CEO Dennis Barnes said Contact had lodged an appeal because in its view the Electricity Authority made "an error of law" in deciding a UTS developed on 26 March, and that the consequences of this error could be negative, and material, for the broader market.
"We consider that the retrospective resetting of prices will create regulatory uncertainty; risks disincentivising parties from putting appropriate risk management in place; and could dampen investor confidence in projects that support security of supply," said Barnes.
“Contact does not undertake this action lightly; lodging this appeal is a measure of how seriously we view the issues raised by the Authority’s decision,” Barnes added.
However others, such as Powershop CEO Ari Sargent believe the Electricity Authority's ruling didn't go far enough. See more here in this Double Shot interview with Sargent.
(Update adds comments from Contact Energy).