Improving the Hedge Disclosure Obligations - Consultation paper published

We are seeking industry feedback on a consultation paper that discusses issues and high-level options to improve the Hedge Disclosure Obligation (HDO) requirements.

The HDO requirements were introduced in 2009 by the Electricity Commission, the predecessor to the Authority, to facilitate the market in over-the-counter risk management contracts. The current HDO requirements in the Code require participants who have entered certain risk management contracts to disclose specified information.

However, the contracts market has materially changed over the past few years and a growing number of risk management contracts are not captured by the HDO requirements. A further concern is that the information specified in the Code for each contract type is insufficient to enable effective risk management.

We expect further changes in the contracts market as the share of renewable generation increases in electricity supply. As these sources of generation are inherently variable in their nature, participants are likely to experience more volatility in spot prices. A well-functioning contracts market enables participants to effectively hedge against spot price volatility. Therefore, ensuring transparency in the contracts market through the HDO requirements promotes effective competition in the electricity market.

Our consultation paper identifies issues with the HDO requirements and the HDO system. It explores potential high-level options to address these issues – and we are keen to hear your feedback.

We welcome views from all interested parties. A full list of questions we would like you to answer in your submission can be found in Appendix B of the consultation paper.

Please email submissions to WholesaleConsultation@ea.govt.nz by 5pm on 9 August 2023.