Electricity Authority Market Commentary

Update - 15 November

The situation has eased in the past two weeks, due to reducing demand with warmer weather, rainfall flowing into hydro lakes and strong wind generation. Gas production remains constrained, and we are working with the industry to monitor this.

Strong inflows have increased storage rapidly—national controlled storage

Prices have fallen—average daily spot prices at Benmore and Otahuhu

Forward prices have come down: quarterly forward curve at Benmore and Otahuhu compared with one week prior

In the meantime, on Thursday, 8 November 2018 we received a claim of an undesirable trading situation (UTS). The claim has been made by five parties – Electric Kiwi Limited, Flick Energy Limited, Pulse Energy, Switch Utilities Limited and Vector Limited. The claim relates to the period from 15 September 2018 onwards. The Authority is investigating this.

Our view on the current situation - 30 October

The wholesale electricity market is in a period of high spot prices, which started at the beginning of October. The industry can manage through this, as it has in the past.

Spot prices are high due to a double whammy of lower than normal lake levels and reduced gas production. These high prices are a signal to the market that fuel is constrained. 

This level of pricing is not unprecedented but is unusual given the timing. The average wholesale price for most of October was $300 per MWh compared to the previous highest October monthly average¹ price of $102. Prices around current levels are more common during winter months in unusually dry years.

Lake levels have been below average for this time of year since late winter. They are often reasonably low this time of year, but storage has been falling for some months due to low inflows - so they are now in the lowest 10 percent of historic storage levels. Usually when lake storage is low generators look to run thermal plant.

At the same time there have been restrictions on gas production due to equipment problems in the Pohokura gas field since late September. We understand these could persist until late November. Kupe, another gas field, is due for inspection next month and this will reduce gas output from this source. 

As a result of these constrained supply conditions thermal generators are running far less than we would expect given the price. Currently thermal is only running at 40 percent of its potential, compared to last winter when we saw similar prices but with thermal running at 80 percent.

From a demand perspective, we see that consumption of electricity is trending down as we move towards summer, as it usually does this time of year.

Chart showing the seasonal demand pattern

The situation has also meant more price volatility and large increases in near-term hedge prices. This has led to spreads in the ASX futures market widening in the same way as they did in winter 2017. As a consequence trading volumes are down. However, we found in our review of the winter 2017 that purchasers exposed to the spot price bought hedges (a type of insurance) well in advance. While we are concerned at the performance of the current spreads on the ASX, the impacts are likely to have been mitigated, to varying degrees, by purchasers buying hedge cover in advance.

We understand spreads can go beyond the five percent threshold in times of stress and that their agreements allow for this. But we believe more can be done to develop the hedge market and are committed to working with industry and the ASX to improve its usefulness as a risk management tool.

Chart showing the average daily spot price trend since late July

Chart showing the bid-ask spread from 3 September to 29 October 2018

What we’re doing in response

The Authority is monitoring the situation closely and our view is the market is responding as we would expect, given the fuel constraints.

As with any significant market event, we're reviewing the situation and are asking questions of industry. Some of the things we look at daily include the spot market offers, thermal generation patterns, outages, behaviour in the hedge market and hydro inflows. We’re also noting and responding to claims in the media where we find they are misleading consumers and the public.

We’re aware of concerns being raised by some industry participants about market behaviour. We take these seriously and look into them. At this point we have not detected evidence of suspicious behaviour.

We’re well prepared for situations like this and have long had regulations in place to ensure companies understand, plan for and manage risk.

We have a mandatory stress testing regime in place. This requires companies trading on the wholesale market to model their financial resilience under two scenarios. This means undertake quarterly tests to help them understand the impact high prices can have on their business. The scenarios cover off a one-off daily spike as well as sustained high prices and the results provide these companies with good information to take appropriate action. They must assure us their board has considered the results of the tests. Large businesses buying directly from the wholesale market also do stress testing to ensure they are aware of the spot market risk they are taking.

As a result of sustained high prices at an unexpected time of year, there may be companies who experience stress. Again, the Authority has a process to minimize any disruption to consumers if a retailer defaults.

Both our work on developing the hedge market and the stress testing regime are based on the belief that the industry are best placed to manage their own risk. To facilitate this we develop the tools and provide transparent information to assist companies to assess the risk and undertake appropriate actions for their business.

In spot markets, consumers benefit from low prices but are similarly exposed to the risk of higher prices – it’s up to them to choose what kind of plan is best for them.

We are focused on ensuring spot price retailers are effective in informing their customers about the benefits and risks of being exposed to fluctuating prices. As part of this, we provide and promote guidance on our website  to help current and potential customers understand more about spot pricing.

Only around 1 per cent of New Zealand households are on spot-price electricity contracts.

--END--

¹Compared to the previous highest monthly average for October (since 2010) of $102, which was in 2011. (The previous highest month was March 2013 at $162 average across the month.) Note that the 2018 figure is only for part of the month and it could still change

On weekends you’ll find Julia Hall hurtling through the hills of Wellington on her mountain bike or exploring trails around the country. But come Monday to Friday, you’ll find her knee-deep in data, keeping an eye on the electricity market. 

As a Senior Economist, Julia  is part of the Market Monitoring team who are responsible for carrying out post implementation reviews − evaluating an initiative the Authority has implemented against its expected outcomes. From the Authority’s perspective, this enables learning about how regulatory decisions are affecting the sector and whether further policy action is required.

A typical day for Julia can involve everything from writing code to analysing data, reading background material (such as consultation papers and submissions) or reading about what other countries have done.  She might also get the opportunity to speak to industry players about how certain changes have affected them – an aspect of the job she thoroughly enjoys.

“It’s really interesting talking to different people in the industry, getting their thoughts on how it’s working for them,” she says. “I’ve also been reading a lot about what other countries have done − or have tried to do − in the space.”

The most rewarding part of the job for Julia is seeing all the hard work pay off when a review is published. Recently she worked on the Post implementation review of dispatchable demand − a project that went live in 2014.

When asked what led her to the role at the Authority, Julia says it was all down to “a bit of luck”.

“A friend of mine actually had this role before me so when they left they encouraged me to apply,” she says. “I was drawn to the problem-solving aspects − figuring out how something is working in practice − and of course learning new stuff. I also liked the idea of working in a smaller organisation.”

Previously Julia has worked at larger organisations such as The Treasury and Statistics NZ. She joined The Treasury as a researcher when she was fresh out of university. Just over two years later she moved to London for her OE, but not before a quick stop in Hong Kong to play in the Oceania Korfball Champs.

Korfball (a ball sport similar to basketball and netball) was a big part of Julia’s life while she lived overseas for 6 ½ years. Work-wise, she spent time at a marketing consultancy firm and then moved to a role at the National Centre for Social Research. There she helped with the sample design and weighting for large-scale social surveys. 

Back in New Zealand Julia spent 4 ½ years in the methodology team at Statistics NZ and then joined the Authority just over a year ago. She admits it’s been challenging getting her head around some complex issues in the electricity industry. But knowing her work can make a difference to everyone in some way − because everyone uses electricity − is gratifying.

Outside work, Julia enjoys mountain biking, an interest shared by many across the Authority.

“When I moved back to New Zealand I took up mountain biking − my dad got me into it − and now that’s about all I do. I also volunteer as a ride guide for the Wellington women’s mountain bike club Revolve.”

It was another record breaking year for consumer choice in 2017/18 as New Zealanders continue to benefit from a competitive electricity market.

• As at June 2018, there were 52 retail brands supplying New Zealand households (compared to 40 the year prior). The more brands that consumers can choose from, the harder those brands have to compete with each other.
• We closed out 2017 with 439,689 New Zealanders switching electricity companies, beating the previous record of 417,639 set in 2015 by more than five per cent.

We have seen improved efficiency and reliability in the market as New Zealand’s electricity industry effectively managed another dry winter.

• This last winter was one of the driest on record for the Southern hydro lakes, and the industry managed the challenge without it impacting significantly on household consumers. Our Winter 2017 review (published in June 2018) showed regulatory and market mechanisms successfully maintained security of supply. The biggest contribution to the effective management of dry winters has come from clear rules about when an official conservation campaign would be run and a stress-testing regime that ensure major retailers and users of electricity are aware of the risks they face. 

We continued on our work to promote greater innovation and participation in the electricity sector.

• We consulted with stakeholders on what may prevent ‘mass participation’ in the electricity market. Submissions indicated that equal access to monopoly distribution networks – that is, allowing more parties to use electricity networks to exchange products and services – is a key concern for parties using or wanting to use the distribution network, particularly those interested in innovation and evolving technologies.
• We consulted on a project about barriers to consumers entering into multiple trading relationships. At present, the market rules and industry practices limit consumers’ ability to establish relationships with more than one electricity services provider. But the electricity world is changing and, as an example, we’re seeing more consumers choosing to generate their own electricity and exploring the potential for battery storage. We have signalled we may look to change the rules over the coming year.
• We collaborated with NZ power provider Mercury to assess whether there were any barriers in the Code (the electricity rulebook) that would prevent them using a battery storage facility in the wholesale market. Storing electricity directly from the national grid in a battery is a first for New Zealand. 

We launched the Electricity Education Portal, the first of its kind, as part of our work to improve information availability for new entrants and participants.

• The new tool saves time for anyone wanting to find our guidelines by putting the information they need at their fingertips. Initial feedback from our stakeholders has been extremely positive and since it was launched in June 2018 there have been almost 900 users of the new tool. 

As part of our work to improve the hedge market we expanded the financial transmission right (FTR) products to include three additional hubs in Kikawa, Redclyffe and Whakamaru.

• The addition of the new FTR hubs has the potential to increase competition in the retail market by allowing more small and medium retailers to enter the market in areas outside where they buy their hedge products. 

Click on our ‘Year in review’ below for more highlights from 2017/2018.

A PDF version of the Annual Report is available on our website. Alternatively, you can request a hard copy of the Annual Report by emailing your name and postal address to communications@ea.govt.nz

The Electricity Authority says results for the first six months of 2018 show New Zealand households are continuing to get more choice of power supplier.

The Authority’s Market Performance team keep an eye on several measures that show what is happening for consumers and enable the Authority to see what is working well and where things can be improved. 

Our six-monthly health check of the market shows consumers are benefitting from a market that is open to new power companies or brands. Our analysts look particularly at the structure, conduct and performance of the market, using a range of measures.

There were 34 power companies servicing residential consumers at the end of June 2018.

A key measure of market structure is the Herfindahl-Hirschman Index (or HHI), which is based on retailers’ share of consumer accounts. A reducing number indicates more companies taking market share, which improves the competitive environment for all consumers. The HHI for the New Zealand residential retail electricity market has continued a significant downward trend during the first half of 2018. It has been going downward since at least 2008, and in a decade it more than halved, from 5509 on 30 June 2008 to 2463 on 30 June 2017. (See the graph below.)

The number of customers changing suppliers tends to be higher in winter months, and more than 40,000 consumers switched in June 2018. New, smaller retailers have been gaining market share while long-standing, larger companies have tended to drop slightly.

The Authority also monitors power company conduct to see if they are competing strongly, and one key measure is surveying consumers to find out how often they have been approached by retailers. The latest consumer survey, done in August 2018, shows more than half of households (57 per cent) have been approached about switching in the previous two years. This is very close to the 2016 survey result (56 per cent).

The team assesses how well the market is performing in delivering value for consumers. The most useful overall measure of electricity prices actually paid by households is the sales-based residential electricity cost data from the Ministry of Business, Innovation and Employment (MBIE). MBIE figures show the energy component of the cost of power to households (the part that the Authority regulates) fell by an average of 0.7 per cent during the year to March 2018. That now makes it two out of the last three years that the nominal energy costs (that is, excluding distribution costs) to residential consumers have fallen. However, due to an increase in average distribution costs (up 2.9 per cent) in the year to March 2018, the average combined cost for delivered energy increased 0.8 per cent.

Also, our statistics show demand for electricity was slightly up in most months of the past half-year compared to the past 10-year average. But overall, the level of demand is still relatively static.

A key part of our function is to monitor, inform and educate; this includes making information available and accessible. Improving awareness and understanding of how electricity markets work is vital to help consumers understand how to participate in markets and the choices they have available to them.

Our What’s My Number campaign has proven to be an excellent way of raising awareness about competition in the retail sector, and motivating consumers to take action to check they are on the best deal for their situation.

In addition to running the campaign, we regularly publish Plain English articles in our Market Commentary newsletter, through the media and on the consumer pages of our website. These articles, publications and stories try to simplify key rules and concepts about the electricity systems, markets and rules and make them relevant to everyday consumers in New Zealand.

As more people begin to interact and engage with electricity systems and markets in more complex ways, it’s only natural that we are seeing more people taking an interest in our work. In fact, the amount of visitors to the consumer pages of our website increased by 200 per cent over the last financial year. And we know more people want to be communicated with through different mediums outside traditional text. By combining text, visual aids and good design, we can reach and improve understanding of complex information with a wider range of people.

In 2017 we created a video animation alongside the release of our Statement of Intent 2017–2021 to help inform a broader, non-sector audience about what we do and where we’re going. We tested the video with a group of non-expert consumers and 89 per cent agreed that video was a good way for us to communicate with them. This animation continues to be the most watched video on the Authority’s YouTube channel.

Since receiving this feedback, we have been working on creating a short series of videos to explain key areas of the electricity industry and topics where we receive the most enquiries and see the most misunderstanding. This first video aims to explain how electricity flows and the key parts that make up electricity pricing in New Zealand, including the average proportion that relates to generation, transmission, distribution and retail.

Electricity in New Zealand 2018

We have updated our flagship publication, Electricity in New Zealand. This popular resource is used to increase public and consumer awareness, and understanding of key concepts in the electricity industry.

Schools, new entrants to the electricity sector, customer service staff and consumers, find this resource very valuable. It explains what distribution, transmission, and generation companies do, and the marketplaces where electricity is traded. It also includes some great facts about electricity history as well as graphs, examples and infographics to bring the information to life.

If you know others who would be interested in finding out more, please encourage them to subscribe to our Market Commentary newsletter, visit our consumer web pages and follow our Twitter, YouTube and LinkedIn accounts. 

If you’d like to receive hard copies of Electricity in New Zealand or want to know more about our consumer materials, email us at: communications@ea.govt.nz.

The Authority has also considered a specific proposal by Mercury for the integration of the first battery directly connected to the high voltage national transmission grid. The Authority was satisfied that there were no barriers in the Electricity Industry Participation Code 2010 (Code) that prevented Mercury from implementing its proposal.

Storing electricity directly from the national grid in a battery is a first for New Zealand. The electricity stored in the battery will then be traded on both the wholesale energy and instantaneous reserve markets.

The benefits of any future batteries could also be achieved by connecting to a local network rather than the national grid.

Electricity Authority Senior Advisor Wholesale Markets Mike Collis says, “We are striving to develop regulatory systems able to be flexible and innovate quickly to ensure consumers’ benefit from the efficient operation of new storage technologies in the wholesale market.

Source: Mercury

“The Authority encourages Transpower and distributors to adopt approaches that allow those providing innovative services from devices such as batteries, to access their networks on a non-discriminatory basis.”

In the future, consumers will have greater opportunities and choices to enjoy the benefits of the new technologies becoming available.

Removing barriers to different forms of generating technologies in the wholesale market will improve supply side competition, contribute to reliability and potentially improve the operational efficiency of the electricity industry.

Mr Collis says, “The Electricity Authority wants to see households, and commercial and industrial consumers, enjoy the benefits of greater choice.

“The battery will also have benefits for the consumer by helping meeting peak demand, and will complement New Zealand’s existing storage in hydro lakes as well as enhancing security of supply to Auckland.”

The battery, at Southdown in Auckland, provides an opportunity to research the integration of battery technology into New Zealand’s electricity system.

The battery is modular and fully scalable. The Southdown site and grid connection has the capability to ultimately deliver 100+ MW of battery-stored power into the national grid, supporting national security of supply.

Mercury will be holding a battery launch event at Southdown on Wednesday, 22 August and the Minister of Energy and Resources, Hon Dr Megan Woods has confirmed her attendance along with key electricity industry participants.

The Authority has turned out to be an ideal place for Chris to put his background in applied physics, love of problem solving and strong interest in the wholesale electricity market into action.

As an adviser in the Wholesale Markets Team, Chris provides expert advice and analysis on developing the wholesale market including the primary spot market, the secondary hedge market and ancillary service markets.

When he’s not busy providing subject matter expertise on the Extended reserve implementation project he uses his wide industry experience to support other advisers on their projects. He enjoys helping out and providing input to the Authority's wider work programme where needed.

Chris was drawn to the role at the Authority because he wanted to get back into the area of wholesale markets, after working in other areas of the electricity sector.

Chris started his career in the NZ electricity sector as a market services analyst at the system operator (Transpower). The main focus of his role was managing and monitoring ancillary services provision and developing system operator’s data storage and reporting capabilities.

Before joining the Authority in August 2017, Chris worked for Contact Energy, first as a spot trader and then in business performance. In the spot trader role he focused on the week ahead trading strategy—looking at plant and fuel availability, market conditions and financial priorities, and then set a broad strategy for the real time traders to implement.

Chris Otton says, “I enjoyed the detail involved in working in the spot market. It was a real problem solving role with many moving parts.” 

But a career highlight for Chris came while working for the system operator during the commissioning of HVDC pole 3 in 2013. During this time, he managed the Market Contracting Team.

Mr Otton says, “The commissioning period was a dynamic time—trying to figure out what we needed from the participants to achieve the testing conditions for the engineers, while trying to make sure we could achieve it at a reasonable cost.

“I really enjoyed working to tight deadlines, leading a team of very engaged and professional people.”

Lucky for Chris, he is also surrounded by talented and engaged people at the Authority who like himself are keenly interested in what they do to develop the electricity sector.

Mr Otton says, “Moving into a regulatory environment has been a big change for me but I’ve found everyone at the Authority to be very supportive and more than willing to share their experience. It’s great to be working with such a passionate and knowledgeable group.” 

To remain responsive to changes in our operating environment, we review the focus of our work programme each year.

The work programme makes a significant contribution to achieving our strategic objectives, as set out within the 2017-21 Statement of Intent. We then set out in the SPE how our work for the coming year is expected to contribute to achieving our strategic objectives.

After taking on-board stakeholder feedback, we are more focused on delivering our priority projects faster, so consumers can benefit sooner. We are confident that by doing fewer projects each year we will achieve more overall.

A key component of our strategy is the removal of inefficient barriers for companies wishing to use new technologies or business models to offer new products and services to residential and commercial consumers.

Two of our priority projects are focused on addressing inefficient barriers: The Equal Access project is focused on addressing inefficient barriers to the ‘poles and wires’ that electricity networks use to transport electricity. The Multiple Trading Relationships project is focussed on inefficient barriers to consumer’s ability to establish relationships with more than one electricity services provider.

Our work to improve price signals represents another key component of our strategy. When parties can see the real distribution and transmission costs of their decisions, they are more likely to adopt the most appropriate technologies for their circumstances. We want improved price signals so that consumers and participants can make more efficient operational and investment decisions.

To find out more about our work programme and our priority projects go to the ‘About us’ section of our website.

We value our stakeholders’ feedback. Don’t hesitate to get in contact to find out more about our work.

• 2018/19 Work Programme
• 2018/19 Statement of Performance Expectations

The portal shows the relationships between hundreds of different topics and knowledge areas within the industry’s guidelines. It’s aimed at anyone with a desire to understand how the electricity system works.

As part of his role as Principal Advisor Market Services, Ron Beatty, works with new entrants to the electricity sector.

“A couple of years ago we had been considering ways of better presenting information and we were shown some new visualisation software,” says Mr Beatty.

“It was immediately apparent to me that we could enhance the guidelines with this type of software. It fixed a lot of issues we knew we had with presenting information to participants in an integrated manner.”

Data visualisation software has been applied to electricity sector guidelines to present information in an easily accessible format. Users who are looking for more in-depth information can follow links to find as much detail as they need.

The tool focuses on the relationships between hundreds of different topics and knowledge areas within the guidelines. It is like a three dimensional neural network.

Mr Beatty says, “There is so much development going on worldwide in technology that is being applied in the electricity industry. There is a lot to keep up with. With over four decades’ experience, I am still learning.

“It’s very important that participants like retailers and generators, networks and metering equipment providers, understand the role they play within the market.

“If, for example, you are retailer new to the sector, you can search on a specific topic, or you can follow the Use Cases as a learning scenario, to find out about the framework that you must operate within (Electricity Industry Participation Code 2010), and what your obligations are to the electricity market.”

The Code talks about obligations and outcomes, but doesn’t show participants the linkages that they need to understand to make their obligations work. The Portal saves time for anyone wanting to find our guidelines by putting the information they need at their fingertips. 

Whiteboard Energy and the Authority have worked collaboratively to produce this portal which can be viewed here. This information will continue to be developed going forward. What you see now is the starting point.

To assist you to use the portal we have developed a user guide and video.

The new interactive Retail market snapshot tool uses Tableau software to summarise key information on switching, market size and share, market concentration, consumer choice, smart meter deployment and solar generation. Users can engage and interact with the information and easily see year-on-year comparisons.

The tool is directly linked to the Electricity Market Information (EMI) website for anyone who wants to drill into the information in more depth.

2017 highlights

New Zealanders continue to enjoy a highly competitive retail electricity market. In 2017 we saw small and medium retailer growth, a continuing uptake of new technology and the highest rate of switching on record.

Consumer choice at new high

At the end of 2017, residential electricity consumers had a choice of between 12 and 35 retail brands depending on where they live. This is a new high. Having new brands and options come into the market pushing existing retailers to create new and innovative offerings is an indicator of healthy competition. Consumers are responding to the choice by switching electricity providers at record rates. 2017 had the highest rate of switching on record with 439,720 consumers switching. Otago was the region with the highest switching rate. In total, 23.4 per cent of Otago consumer connections switched retailers in 2017.

Small and medium retailers continue to grow

The growth of small and medium-sized retailers continued in 2017 with new entrants entering the market and competing for customers. In 2017 small and medium retailers supplied 11.1 per cent of consumer connections, up 1.7 per cent from 9.4 per cent in 2016. Electric Kiwi increased the number of connections they supply the most in 2017, gaining an additional 12,239 customers across New Zealand.

Smart meter deployment continues

Installations with smart meters continued to increase in 2017. At the end of 2017, 81.1 per cent of residential consumer connections had a smart meter, 4.4 per cent more than in 2016. Smart metering technology lowers the cost of collecting meter readings and provides access to more detailed information on consumption. More importantly, smart meters allow retailers to design more innovative and tailored offerings to consumers.

Users looking for more in-depth insights can hover over each section in the tool and follow the link to the corresponding EMI report. The EMI website allows users to customise content and visualise New Zealand electricity market information in dashboards and reports as charts, maps and tables. Users can also create their own dashboards allowing them to capture content that they want to return to keeping it in one easy-to-access place.

Click here to be directed to the Retail market snapshot

The changes are underway now, and in the future consumers will have greater opportunities and choices. Electric vehicles, energy management systems, solar panels and batteries are giving consumers more choice about how they use electricity and where they get it from.

Mr Evans says, “We think the New Zealand electricity sector is well placed for consumers to enjoy the benefits of the new technologies becoming available.”

The Electricity Authority wants to see households, and commercial and industrial consumers, enjoy the benefits of greater choice.

Consumers’ and suppliers’ ability to participate depends on their ability to get access to services.

Adjusting to New Zealand’s electricity future involves three factors that need to be considered to promote increased participation:

• the physical platform, for example the poles and wires used to transport and distribute electricity across the country, 
• the market system – how electricity is bought and sold, and
• suppliers of services, for example P2Power which matches people with local generation (eg solar) selling to their neighbours.

Facilitating innovation and participation is a key focus of the Electricity Authority’s work along with reducing barriers to the entry, expansion, and exit, of parties in electricity markets. Craig Evans’ role within the Market Design team is to progress a number of projects in these areas. 

“We have several projects looking at barriers to accessing services, such as the Equal Access and Default distributor agreement projects. A particular focus is the relationship between distributors and parties using the distribution network, because most of the changes to the sector are occurring at the consumer and distribution level,” says Mr Evans. 

Craig Evans’ team are looking at data flows – “there’s a lot of data behind the scenes in New Zealand’s electricity system. We want to see that data is exchanged between participants across the supply chain.” The Multiple Trading Relationships project is examining concerns related to possible barriers to parties providing services to consumers, such as obtaining data. 

They are also investigating pricing – “this is about the prices of the bundle of services needed to get electricity to the consumer better reflecting the cost of supplying each service,” says Mr Evans.

“Our Distribution Pricing project is about encouraging distributors to adopt prices that provide parties using the distribution network with the best possible information about the value and cost of using the network at a particular time and place.”

The Electricity Authority, with the Commerce Commission, are working hard to find and reduce unnecessary barriers to more participation and to consumers enjoying the long-term benefits of the changes occurring around us now. 

The Authority’s work feeds into making recommendations for regulatory change.

The 2017 Winter Report tells a story of how the electricity market performed during the winter of 2017.

Hydro storage was well-managed. Leading into winter, there was extremely low rainfall around the South Island hydro lakes. This limited the amount of water available for generators heading into winter when electricity demand increases. Pleasingly, the electricity supply was well managed, as a result of the regulatory and market mechanisms introduced since 2010 to improve security of supply.

Over 50 per cent of New Zealand’s electricity is generated from large hydro-electric stations in the South Island. If there is low rainfall it means the lakes that provide the water for this generation can suffer from low storage levels.

The Authority developed and now monitors a range of regulatory measures to help effectively manage the risk caused by dry years.

We are pleased the dry winter conditions were handled with no noticeable impacts and no disruption to consumers.

The greatest contribution to effective management of dry winters has come from the range of measures introduced, in particular the clear rules about when any official conservation campaign would be run and a stress testing regime which ensures major retailers and users of electricity are aware of the risks they face.

In an extremely severe event, a public conservation campaign may be needed. This means all consumers will be asked to use less electricity. If this happens, electricity retailers must pay compensation to their customers. The rate for this compensation is currently set at $10.50 per week, per customer. By conserving water early the electricity system has more options to get through the winter and there is a lower likelihood of a public conservation campaign.

Our stress testing regime requires participants buying electricity from the wholesale electricity market to apply a set of standard stress tests to their market position, and report the results to their board and to an independent registrar appointed by the Authority.

In the electricity futures market, the difference between the best offer to sell at and the best bid to buy widened over the winter. This widening can reduce the ease with which parties can manage the risks they face and maintain confidence in the reliability of the prices in the electricity futures.
The Authority will be looking at whether further measures are needed to strengthen the electricity futures market.

Around 10 per cent of residential consumers on spot contracts switched to fixed price variable volume contracts—the most common sort of retail contract—during the winter. The Authority will continue its work to ensure spot price retailers ensure their customers are well informed about risk.

The 2017 Winter Review report is available here.

This month we sat down with Ross Hill, General Manager (GM) Legal and Compliance to discuss his role at the Authority and the challenges that come with working in a constantly evolving industry.

Ross’s career in electricity began back with the Electricity Commission as the embedded lawyer for what was then the Transmission team. Shortly before the Authority was established in 2010, Ross stepped in as Acting General Counsel before moving into his current role in February 2011. 

Ross now leads the Authority’s legal and compliance group, which has two teams: The in-house legal team provides legal advice and support across the organisation. The compliance team carries out the Authority’s statutory function of monitoring, investigating and enforcing compliance with the Code. As a GM, Ross is also on the Authority’s Senior Leadership team assisting with major decision making and championing the organisation’s mission, vision and values.

He entered the world of electricity with a law degree and considerable experience in other compliance jurisdictions. Although he had no background in the electricity industry he was drawn to the Authority by an interest in electricity, brought on by friends already working in the industry, and a desire for a big challenge. 

He finds the biggest challenge now is that the easier stuff has been done. “It seems like we’ve been talking about evolving technology and innovation for a while, but now it is really starting to happen,” he says. “The work is becoming more complicated as the industry changes.”

Ross says that as the industry evolves it is important that the Code is as accessible, readable, and understandable as is possible. This is a challenge considering the Code’s content and the existing level of prescription. “We don’t want the rule book to be perceived to be, for example, a barrier to entry into the market.” he says.

Alongside the challenges, Ross’s role comes with many rewards. He says the best work the legal and compliance team do is to help people. Ross commends the experts in his team who are on the phones with participants helping them with issues so they don’t breach the Code.

“It would be interesting to know the statistics of the compliance cases we never see because we have helped participants with their compliance in the first place,” he says. “As a manager and leader it’s rewarding to see people doing well and I’ve been some assistance in enabling them to do so.”

Recently Ross and his team were involved in a Regulations Review Committee hearing, which involved a complaint about a change in the Code. The case involved months of preparation and lots of work ahead of the hearing including detailed submissions. The hearing itself only lasted a few hours but the hard work paid off when the Committee found the grounds for the complaint were not made out. Ross says this was a very pleasing result that endorsed the robustness of the Authority’s processes.

Over the course of the 4-day event I listened to some of the most relevant voices in the global energy industry talk about “Regulating in a Time of Innovation” – the main theme of this year’s forum.

The energy sector is evolving rapidly and as Michael Liebreich from Bloomberg New Energy Finance said, “By 2040 one third of the world’s energy will be wind and solar, one third of vehicles worldwide will be EVs and the economy will be one third more energy-productive”.

As innovation and technology developments are rolled out, it is important we swiftly and efficiently adapt. And as the sector evolves we need to adjust the way we regulate it.

While the new role is light years removed from work Sarah has done previously, it still aligns closely with the work values she has held since leaving school.

Sarah says she chose to work at the Authority, joining in 2015 as a Market Operations Coordinator, because she could see people here were keenly interested in what they do but managed to have a bit of fun at the same time.

Her role within the half-a-dozen-strong Market Operations team is to provide a gateway between the operational arm of the Authority and the industry (participants and market operations service providers like NZX and Transpower), helping parties on both sides meet their requirements under the Electricity Industry Participation Code 2010 (the Code).

Sarah fields consumer-related questions and enquiries about industry-related processes, referring them on to others to resolve when they reach the boundaries of her knowledge. However, those boundaries are being pushed out all the time. Since taking up the role last year, she feels she’s rapidly becoming a “jack of all trades” and building a deep understanding of how the electricity sector works.

The Authority has turned out to be an ideal place for a motivated woman with an appetite for knowledge and experience. Sarah left school early without a clear idea of what she wanted to do and pursued an assortment of jobs − tutoring in photography, working as a clown, labouring on a building site, retailing in pharmacies before moving into an office environment.

During a stint in the UK, she worked for the Institute of Chartered Accountants, managing facilities staff in its Milton Keynes office from her base in the London headquarters. Returning to New Zealand, she took up a succession of short-term roles before finding her way to MSD  working as the Executive Assistant to the General Manager Integrity Services for a year and then to the Authority.

Out of work hours, Sarah travels whenever she gets the chance. Her interest in finding out how things work behind the scenes has led to some wonderful experiences, including the chance to see places like Manapouri when travelling for work.

“I’m in a job where there is always something new to learn about and new connections to be made,” she says. She’s also having to change the way she thinks. “Most of my earlier jobs were task related; now I’m having to think about things differently, and it’s stretching me in different ways.”

Most of all, Sarah enjoys the variety of work at the Authority. “You never know what’s going to land in the inbox each day,” she says. “I’m not sure you could ever stop learning.”