Retailers take action over wholesale electricity market chaos
Thursday, 8 November 2018
Independent retailers Pulse Energy, Electric Kiwi, Vocus Communications and Flick Electric have laid a joint complaint with the Electricity Authority (EA) about wholesale electricity market conditions.
Wholesale power prices have soared in recent weeks.
Last month, the average wholesale price was $300 per MWh. That's just under three times the highest October monthly average previously recorded.
That's meant big bills for customers who pay variable rates, such as Flick's, and put pressure on businesses that offer fixed-price billing.
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There have been claims that the big gentailers are 'gaming' the market – and providing power to their own retail brands at a cheaper price than to competitors. The gentailers have refuted suggestions anything inappropriate was happening.
There have been industry rumours that small players without enough hedging – future protection against high wholesale, or spot prices – might go out of business.
On Tuesday, it was revealed that Payless Energy had decided to stop selling electricity because of that price pressure.
The retailers, with more than 148,000 customers combined, said the spot prices were not transparent or justified, and had collapse liquidity in the hedge market, threatening independent competition.
Electric Kiwi chief executive Luke Blincoe said the Electricity Authority (EA) should step up. 'By allowing current conditions to go unchecked, the EA is failing to regulate this sector with the independence and vigour necessary to fulfil its responsibility for promoting competition and the interests of consumers. This inaction undermines confidence in the market, and ultimately demonstrates market failure.'
Pulse Energy chief executive Gary Holden agreed: 'To this point, the EA has measured the degree of competition based upon the simple metric of the number of retailers in operation. It is now time to take a serious look at the market deficiencies that are impeding these retailers from delivering better prices to consumers. A few simple steps, based on sound market principles, could provide a more level playing field for innovative retailers, create a more sustainable business environment and long-term consumer benefit.'
Flick chief executive Steve O'Connor said the high prices showed a flaw in the market design.
'This situation is not about 'business as usual', it is about opportunism driven by a lack of well-supported competition - opportunism that has already seen three independent retailers exit the market. We are elevating this issue on behalf of our customers and all Kiwis, who deserve a properly functioning market that enables product innovation and consumer choice.
'Essentially the big gentailers have been ripping off Kiwi families for decades and will continue to unless they are made to change their practices. We and other smaller players have worked hard to drive competition in the market, while the gentailers continue to make massive profits thanks to questionable spot market pricing,' said Vocus head of regulatory and commercial, Johnathan Eele.
The four companies are lodging an Undesirable Trading Situation (UTS) Claim for urgent consideration by the EA. The market's regulator is obliged to consider the claim and make a decision as to whether this constitutes an 'extraordinary event' which threatens confidence in the wholesale market.