Electricity Authority decides no undesirable trading situation on 9 August 2021

The Electricity Authority (Authority) has today published its decision on the claim that an undesirable trading situation (UTS) occurred during six trading periods (37 to 42) on 9 August 2021.

The Authority has decided no UTS occurred on 9 August 2021.

“This UTS investigation focused on three critical aspects of the 9 August event; the decisions made by Genesis and Contact Energy in relation to certain generation assets; the system operator’s management of the grid emergency; and the application of scarcity pricing” says Sarah Gillies, General Manager Legal, Monitoring and Compliance at the Electricity Authority.

“The context in which the decisions were made was critical. On Monday 9 August 2021 the country faced the largest demand peak on record in response to one of the coldest nights of the year. This was an extremely rare event and real time decisions were made in a difficult and uncertain situation.

Sarah Gillies says the generation decisions made by Genesis and Contact on 9 August 2021 were in the range of what the market might normally expect based on the circumstances at the time.

“The Authority assessed these decisions based on the context of 9 August 2021. In the Authority’s view, these were rational decisions based on the information at the time and were within the range of what the market might reasonably expect in the circumstances. For that reason, these decisions did not threaten confidence in or the integrity of the market.”

While the system operator’s management of the grid resulted in consumers being disconnected, all those consumers were reconnected on the day.

“A UTS is a situation that can be resolved by using the UTS powers under the Code. Consumers were reconnected on 9 August 2021 and for that reason there was no ongoing situation for the UTS powers to resolve.”

“The scarcity pricing issue is not straight forward and that’s why it warranted specific consultation. The Authority concluded there was scarcity on 9 August and on that basis scarcity pricing was appropriate. However, the system operator and the Authority agree the island shortage situation (ISS) notice was issued in error – the system operator requested reduced demand instead of instructing electrical disconnection before the ISS notice was issued. Regardless, the outcome was the same- consumers were disconnected in response to genuine scarcity.

Scarcity pricing has never applied before and the application of this provision of the Code was being tested for the first time. 9 August highlighted an issue with the application but with the introduction of real time pricing in the next 12 months, ISS notices will no longer be required and pricing will automatically respond to supply and demand conditions.

“The Authority thanks all parties who submitted on the preliminary and supplementary consultation papers. This investigation involved a lot of technical information, and we appreciate the time and insight from submitters.”

The Authority has worked on various workstreams in response to 9 August 2021 including the investigation into this UTS claim; a two-phase review under section 16 of the Electricity Industry Act; consideration of alleged breaches against the Code; and responding to the Minister’s investigation and subsequent recommendations for the Authority and the system operator.