Electricity Authority knocks back Flick, Electric Kiwi complaint

Thursday, 28 February 2019

There are lots of components in a typical power bill.

A complaint by independent power retailers about a wholesale price spike last year has been rejected by the Electricity Authority.

Flick, Pulse, Electric Kiwi and Vocus Communications laid a joint complaint, alleging an 'undesirable trading situation (UTS)'. They said Genesis, Contact and possibly other market participants were required to disclose that their normal fuel supplies had been disrupted as a result of an outage at the Pohokura gas field, but did not do so.

In October, the average wholesale price hit $300 per MWh. That was just under three times the highest October monthly average previously recorded.

It hurt providers such as Flick in particular because those increases flowed through directly to customers on variable price plans.

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In October, the average wholesale price hit $300 per MWh. That was just under three times the highest October monthly average previously recorded.

* 2500 Flick customers jump as wholesale power price pressure continues**

Flick lost about 2500 customers to other providers.

But other independent retailers were also put under pressure because the price they had to pay the generators for the power they sold their customers increased so dramatically.

Payless Energy quit the market.

Electric Kiwi chief executive Luke Blincoe said at the time 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.'

On Thursday, the wholesale price was back down to between $17 and $82, depending on where in the country it was being generated.

But the authority said it had investigated and concluded the episode was not a UTS.It said the perception of an information imbalance about the outage was larger than it really was. 'We think this was largely caused by difficulty in accessing information regarding gas outages and other indicators of the gas supply situation.'

Chief executive James Stevenson-Wallace said: 'We didn't find any evidence of anti-competitive behaviour. We have absolute confidence in the wholesale market.

'We had low hydro levels, a compromised gas supply and increased demand for electricity. Collectively, these factors led to the high prices, which some retailers and consumers felt more than others.'

'The electricity market operates in an ever-evolving space—there are always more challenges. Any participant in the market needs to understand those risks, plan ahead and manage them on behalf of their customers.'

Blincoe was unimpressed.

'This is another case of the EA looking for ways to do nothing,' he said.

'The EA has a statutory objective to promote competition for the benefit of consumers – and that's why independent power companies like Electric Kiwi will continue to hold both the regulator and industry to account. Consumer interests are not well-served with this decision. We have already seen prices moving up since the event late last year with recent price increases from both Genesis and Mercury.'

Stevenson-Wallace said the investigation had shown the need for better disclosure of fuel information and improved tools to support liquidity in the market.

The EA report found Genesis 'significantly altered its position' in the hedge market at a time when it had better information than was publicly available. It rapidly purchased hedge contracts in the 10 days before Shell made a public announcement on September 28.

But it said the information that Genesis had access to, whilst the best available, was still uncertain and not significantly better than that available publicly. Genesis had a legitimate commercial reason for purchasing October contracts.

'We're already planning some hedge market improvements and we intend to work closely with industry and agencies to improve the availability and accessibility of fuel information, including gas information,' Stevenson-Wallace said.

The authority is now investigating potential breaches of the industry's code in response to other allegations made by the claimants. The Australian Securities and Investment Commission (ASIC) has been notified of the allegations about trading hedges.

The recent Electricity Price Review options paper recommended improving gentailers' disclosure requirements and better market-making arrangements, which Blincoe said could avoid this situation happening in future.