9 May 2011

Firms put on alert to risks in spot power market

8:38 am on 9 May 2011

A greater use of hedge contracts or production rescheduling to protect against soaring electricity prices are now more likely by companies, despite a regulatory decision to reverse a price spike in late March.

Electricity prices surged to $20,000 a megawatt hour on 26 March during a planned maintenance shutdown in the Upper North Island.

The Electricity Authority found Genesis Energy's action threatened the stability and integrity of the wholesale market.

The authority says Genesis did nothing wrong, but it reset prices to between $1500 and $3000 a megawatt hour.

Tens of millions of dollars in lost earnings were at stake, and the decision will be a relief to firms which faced those high spot prices, including Mighty River Power and Meridian.

Mighty River chief executive Doug Heffernan says another so-called undesirable trading situation cannot be ruled out, and the important thing is that the regulator has been seen to have effective rules to deal with the problem.

He thinks people will be more aware of the risks in the spot market and take measures to mitigate them.

Submissions have been called by the Authority, with a final decision due next month.