By Pattrick Smellie
The Electricity Authority’s decision to strike down sky-high power prices that occurred on March 26 last year has been vindicated by a High Court decision throwing out appeals by generators Contact and Genesis.
Contact, Genesis and Todd Energy-owned Bay of Plenty Energy led the fight against the authority’s decision to reverse tens of millions of dollars of unexpected cost for their competitors and major electricity users, caused by wholesale market spot prices staying above $20,000 per Megawatt hour for some seven hours last March.
The EA declared the period, which occurred on a Saturday during a previously notified maintenance outage on the national grid, an “undesirable trading situation”.
It reset all prices for March 26 to no more than $3,000 per MWh. Normally, wholesale electricity spot market prices range from between around $50 and $150 per MWh.
The judge found a range of intertwined factors had combined on the day to constitute the UTS, and that the authority had reached the right conclusions.
He rejected suggestions that the reversal punished companies that had hedged their exposure to spot prices appropriately while rewarding market participants who hadn’t made arrangements to shield themselves from price spikes.
“The Authority found that the vast majority of market participants did not foresee the high prices,” Judge Ronald Young said in his 91 page judgment. “Those that did were reassured by late March 25 that high prices would not eventuate. In the circumstances, therefore, high prices were neither foreseen nor foreseeable.”
Among those worst affected were the state-owned power companies Meridian Energy and MightyRiverPower, along with major Auckland users including New Zealand Steel, the NZ Sugar Company refinery, Auckland War Memorial Museum, TVNZ, and Vodafone.
Nor was it the EA’s job to apportion blame for the “squeeze” on the electricity system that produced higher prices for a more sustained period than had been seen previously in the electricity spot market. The important point was that there was a squeeze, and it created a UTS, Young found.
The EA was also correct to rule a UTS for fear the very high prices could affect confidence in the wholesale electricity market.
“In this situation, the Authority was faced with a large number of complainants, some of the largest electricity industry participants in New Zealand, many of whom were saying their confidence in the market had been undermined by these events,” said Judge Young.
“While the Authority did not have to accept what the complainants were saying this was powerful evidence of an actual loss of confidence.”
“In assessing threats to trading and the likelihood of orderly trading being affected, confidence in the market is relevant,” the judge said.