Stress tests

Spot price risk disclosure, also called the stress testing regime, helps electricity market participants understand how exposed they are to sudden increases in wholesale electricity prices, using standard scenarios set by the Electricity Authority.

On this page —

About stress tests

The stress testing regime helps organisations understand and manage their exposure to sudden increases in wholesale electricity prices. This supports a fair and well-functioning electricity market.

The regime aims to:

  • build each disclosing participant's awareness of its exposure to spot price risk
  • encourage participants to take proactive and prudent steps to manage that risk
  • emphasise that each disclosing participant is responsible for managing the extent of its own exposure.

If a participant does not manage this risk appropriately, for example by not hedging, it can cause consumer harm. One example is when customers are reallocated to a more expensive retailer because a participant has not met its financial obligations.

The regime requires participants to apply two standard tests to their electricity market positions. These tests simulate:

  1. Energy shortage events that may lead to periods of sustained high spot prices, and
  2. Unexpected capacity shortfalls that may cause short periods of high spot prices due to sudden increases in demand.

Every quarter, each disclosing participant must test its position and report the results to the Stress Test Registrar. The registrar provides anonymised information back to the Authority.

Stress tests are intended to fit with the arrangements that electricity market participants already use to monitor and manage their exposure to spot price risk.

Do these requirements apply to me?

You must take part in the stress testing regime if you are a disclosing participant in the wholesale electricity market.

Disclosing participants are organisations who:

  • consume electricity conveyed directly from the national grid, or
  • buy electricity from the clearing manager.

How do I meet these obligations?

If these requirements apply to you, here is some information on what to do:

1. If you are stress testing for the first time

To submit your quarterly statements, you must first register with the Stress Test Registrar. To do this, you will need to:

2. How do I complete the stress tests?

A stress test analyses how high spot prices would affect your financial position.

The required test scenarios are set out in the stress testing regime document, which includes guidance on the assumptions you must apply.

If you use a different methodology for spot price modelling, paragraph 2.16 of the regime requires you to use the relevant: regional time‑of‑use factors, nodal factors and demand factors. These are available in the quantitative data spreadsheet: Stress testing - quantitative data.xlsx

After completing the two tests, you must report your results in your spot price risk disclosure statement.

3. What is a spot price risk disclosure statement?

The spot price risk disclosure statement captures the results of your stress tests. This information is disclosed to the Authority under clause 13.236E of the Code.

Your disclosure statement must include:

  • your annual net cash flow from operating activities (from your most recent audited financial statements)
  • your level of shareholders' equity (from your most recent audited annual financial statements)
  • the increase or decrease in projected value sold to the clearing manager under each stress test
  • the increase or decrease in projected value purchased from the clearing manager under each stress test
  • the increase or decrease in projected net cash flows from operating activities under each stress test
  • a statement confirming whether you have an explicit risk management policy for wholesale market exposure
  • if you have an explicit risk management policy:
  • the target cover ratio for each stress test (calculated to the method published by the Authority)
  • the actual cover ratio for the previous quarter (if the information exists).

The disclosure statement template is appended to the stress testing regime document.

You can enter your information directly online into the Stress Test Registrar.

4. What is the certificate of spot price risk disclosure statement?

The certificate of spot price risk disclosure statement confirms your Board has reviewed and approved your stress test disclosures. It confirms your organisation has:

  • considered each spot price risk disclosure statement and the projected impacts of the stress tests
  • provided any customers exposed to the wholesale market with information to understand their own stress test outcomes
  • adequately considered its risk management policies.

The Stress Test Registrar can provide support for participants to submit their certificate.

5. What do I need to submit, and when?

You must submit:

  1. Spot price risk disclosure statement: submit your statement no earlier than 20 business days and no later than 5 business days before the start of the quarter the statement relates to

  2. Certificate of spot price risk disclosure statements: submit your signed certificate using the stress test application. The timing requirements are:

    (a) First certificate: due by the end of the fourth quarter after the quarter in which you submitted your first disclosure statement. This first certificate must cover all disclosure statements from the first year

    (b) Subsequent certificates: due by the end of the fifth quarter after the quarter in which your last certificate was submitted. Each certificate must cover all disclosure statements you have submitted since the previous certificate.

6. What happens to my data after I submit it?

The Stress Test Registrar collates your results and provides them to the Authority in a format that ensures individual participants are not identified. We publish the aggregated results on our website.

Disclosing participants can review these reports and compare their exposure with other participants.

Large scale consumer stress tests

Many large consumers have supply contracts with their retailer that links their price to the wholesale spot price. This link means these large consumers can be directly affected by high prices in times of wholesale market stress.

Large consumers can apply a modified set of stress tests to help them assess their risk position. These voluntary stress tests can act as a guide to help large scale consumers understand how their electricity bills might vary if they are exposed to spot prices. Consumers can also see how their electricity costs during such an event would change if they were hedged for a smaller or greater proportion of their electricity use.

There are two stress test scenarios that allow consumers to compare their financial performance under the stress test scenarios to a business-as-usual or 'base case' situation.

View large consumer stress test scenarios and examples.

Consolidating disclosure statements

Disclosing participants may apply to the Electricity Authority to consolidate their spot price risk disclosure statements. Here is some more information on this process.

1. Why consolidate?

It can be more efficient for two or more participants to submit one set of consolidated spot price risk disclosure statements.

2. Who can consolidate?

Disclosing participants can consolidate their disclosure statements.

Under Part 1 of the Code, ‘disclosing participant’ means either a person who:

  • consumes electricity that is conveyed to the person directly from the national grid; or
  • who buys electricity from the clearing manager.

Note that if a notice under clause 1.5(4) of the Code is in force, ‘Participant A’ to that notice is the person who buys electricity from the clearing manager. This may change the requirements to submit disclosure statements.

3. Any qualifying criteria?

The criteria for allowing consolidation are:

  • the first party's risk must be wholly absorbed by the second disclosing party
  • this must be demonstrated by an arrangement covering electricity purchase between the parties
  • in the case of parties not closely related, the arrangement must be a written contract between them
  • a director, chief executive or chief financial officer for each party must certify existence of the arrangement or contract and consent to the consolidation on behalf of the party.

4. What's the process?

There are two steps to the process:

1. Participants submit an application: at any time in the reporting cycle to info@ea.govt.nz with 'Stress testing consolidation application' in the subject line. The email should:

2. Electricity Authority consider the application: according to the qualifying criteria and either approve or decline it. If the application is declined, we will notify the parties stating our reasons. If the application is approved, we will:

If circumstances change and the participants no longer qualify, the participant must notify us as soon as practical. Our approval is automatically withdrawn if the criteria are no longer met.

We will advise the registrar and confirm the change in writing to the relevant participants.

Stress test question?

Feel free to contact info@ea.govt.nz with your questions or for support.