New trading conduct rule clarifies expected behaviours in the wholesale electricity market

The Electricity Authority has decided on a new trading conduct rule.

Trading conduct rules are designed to ensure appropriate behaviour in the wholesale electricity market. At times, New Zealand’s system relies heavily on one or a small number of suppliers to meet demand. The trading conduct rules intend to prevent suppliers taking advantage of such situations. The rules set out the expected behaviour while still allowing prices to signal genuine scarcity of supply.

“The Authority is aware some rules may not give the protection and assurance the sector and the public deserve. That’s why we’ve made changes to the trading conduct rules. We want to build trust and confidence in the electricity market and the sector by giving certainty in existing and new rules.” says James Stevenson-Wallace, Chief Executive of the Authority.

“The previous trading conduct rules were introduced in 2014 and have been repeatedly tested since then. Most stakeholders agree the rules lacked clarity and needed to be revised.”

The Authority considers the changes will make the trading conduct rule easier to understand, comply with, and to enforce. There have been some significant changes, including removing the safe harbour provisions.

“We expect the new rule to provide clarity and strengthen confidence in the wholesale electricity spot market for the long-term benefit of consumers.” Says Mr Stevenson-Wallace.

The rule comes into effect on 30 June 2021.

The new trading conduct rule is the result of a comprehensive review led by the Authority and the Market Development Advisory Group. The review involved multiple consultations with interested parties as well as the use of expert panels to test options.

”The review process has been thorough – it had to be given the difficult nature of the rules and the need to consider the many different scenarios.“ says Mr Stevenson-Wallace.

The Authority will actively monitor the new rule as part of an enhanced monitoring, enforcement and compliance regime. Our approach to monitoring the trading conduct rule has been published to support understanding of the new rule.

While reviewing the rule, the Authority has also supported MBIE in its review of the penalties applicable to the electricity sector.

The trading conduct reform is part of a suite of projects the Authority has underway to improve trust and confidence in the wholesale market. This includes implementing enduring market-making arrangements, improving disclosure of wholesale market information and internal transfer pricing and profitability reporting.