Flick Electric CompanyThe Blog

What's Up With The Market? 7 March 2019

Kia ora, #CleverFlickers,

With the recent release of the Electricity Price Review (EPR) panel’s options, the EA’s announcement on our Undesirable Trading Situation (UTS) claim, and some higher spot prices in the mix this past week, we’ve collated the all-important details for your perusal. Since the last update, a tight gas supply and a continuing fall in hydro storage levels have pushed spot prices up again and we’ve seen some high daily average prices. Let’s take a closer look.

The Pohokura effect

Gas, or lack thereof, remains one of the key drivers of electricity prices at the moment. The initial two-week Pohokura gas field outage has ended, with OMV (the oil and gas company who operates Pohokura) having completed the first phase of maintenance work which should optimise production from this large gas field. That’s good news!

A further 18 days of outages are expected throughout March and April, but the exact start and end times will be influenced by a number of factors, including weather conditions, and it’s possible these outages might affect the amount of generation that’s available from our gas-fired thermal units.

High temperatures, high demand

Much like the previous market update at the beginning of February, an extended run of hot and dry weather, plus a good amount of South Island irrigation, has kept demand higher than normal for this time of year. While the end of February saw a good dose of rain around the country, it hasn’t been enough to make much of a difference to our hydro lakes: national hydro storage is currently sitting low at around 83% of average for this time of year, and inflows over the last week have been well below average at around 70%.

How are things looking for March? Well, the forecast’s suggesting that this sunshine’s not going anywhere fast, with warmer and dryer weather on the cards. It’s likely we’ll also see rising demand for power as the days shorten and the mornings and evenings grow cooler.

Undesirable Trading Situation (UTS) claim and the Electricity Price Review (EPR)

As you’ll likely know, in November 2018 we joined independent retailers Pulse Energy and Electric Kiwi, along with Vocus Communications and Vector (with public support from Oji Fibre Solutions and Fonterra) to lodge a UTS claim for urgent consideration by the Electricity Authority (EA), in response to last year’s unprecedented high price event.

The UTS put forward suggestions to keep the market fair, including requiring that large generators offer hedge contracts on fair terms, ensuring they disclose important information to everyone in the market and better monitoring of NZ’s gas supply.

Last Thursday, the EA announced that they had found there was no undesirable trading situation. So, what exactly did they find? Well, there’s evidence that Genesis had access to asymmetric information (info that others in the same market don’t have access to) which the EA described as “small and often non-material” and “uncertain”. In our opinion, and as we argued in our UTS, the info Genesis held was neither small, non-material nor uncertain. At the end of the day, when one generator/retailer (‘gentailer’) has access to information that others in the market don’t - and when that gentailer happens to benefit during that same period - something seems off.

The EA is also looking into possible issues around information disclosure, and they’ve referred their findings on to the Australian Securities and Investments Commission (a.k.a ASIC - the big guns in the electricity game).

While the overall outcome of the UTS wasn’t the one we and the other claimants wanted, it’s still important. Why? Well, all consumers benefit from strong competition, and the independent retailers who lodged the UTS are driving price competition, consumer choice and innovation. So we’re going to keep on fighting to level that playing field.

We’re also super inspired by February’s EPR options paper - it was a good’un! As we mentioned in our recent EPR blog, it recognised a lot of the same issues that were raised in the UTS and there are some fantastic and positive recommendations in the line up, including tougher industry rules on disclosing wholesale market information and gentailer profits, as well as mandatory market-making to help keep things on a more even keel. It’s all good stuff, and we reckon it’ll lead to a fairer, more proactive and robust energy sector, and one that’s in line with the voice of Kiwi consumers. We’re excited for what’s ahead!