We agree that the current TPM has some major problems in relation to the HVDC charge, in particular, which penalises SI generators while NI and SI consumers, and NI generators, also benefit from the presence of the link from time to time. We also congratulate the Authority on taking a new approach to this problem and looking ‘outside the box’.

However, while adopting a beneficiaries-pays approach to transmission pricing has a great deal of appeal from a theoretical standpoint, we have a number of concerns about the proposed TPM, and remain unconvinced that it would achieve the objective of better promoting competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

In fact, we believe that it has the potential to create perverse, unexpected outcomes which could ultimately work against the interests of consumers. We feel that it would be beneficial to undertake further work on these issues to quantify the potential for adverse outcomes, and to modify the proposal accordingly. We also outline some changes to the proposal which could either reduce or eliminate certain adverse outcomes if the beneficiaries-pays approach is adopted.

We have concerns with several aspects of the proposed TPM:
1. the potential to reduce competition in the retail market;
2. the inability to hedge potentially volatile charges calculated using the SPD method (the “SPD charges”);
3. the impact on smaller players being out of proportion to their size;
4. the impact the choice of VoLL has on spot purchasers;
5. the choice of counterfactual scenarios for use in calculating SPD charges;
6. the impact on generator offers;
7. access to relevant market data.

The index decreased this month on a volume of 1 contracts traded 0 CFD, 1 FPVV. The Energy Link index excludes contracts from ASX, and contracts less than 6 months in duration.

After completing a thorough evaluation, Meridian Energy has purchased a license to deploy and use Energy Link’s EMarket model of the electricity market and supply system. The evaluation included an extensive comparison of EMarket’s water values and operation of large hydro systems against the influential SPECTRA model which was originally developed by the Electricity Corporation of New Zealand in the late 1980s, and still used at Meridian today.

A new and improved water value algorithm was developed for EMarket in 2010 and extensively tested prior to and during the evaluation by Meridian.

Olly McCahon, Modelling Services Manager at Meridian, undertook the evaluation and will have his modelling team using EMarket to model the nodal prices which are set in the electricity spot market.

Meridian joins two other major generators who currently license EMarket.

Greg Sise, Managing Director

Energy Link was recently engaged by the Electricity Authority to undertake an independent review of the progress the five major generators have made toward achieving the Government’s expectations concerning a liquid electricity hedge market, to assess the liqudity of the hedge market, and to make recommendations for further development of the futures market.

A lot of progress has been made in a relatively short time, but we have recommended that the spread between bid and offer prices in the electricity futures market run on ASX needs to come down from 7% - 8% on average, to under 5% and preferably into the 2% - 3% range. Achievemet of this is likely to attract new futures traders into the market.

The report is available at:

http://www.ea.govt.nz/our-work/programmes/market/hedge-market-development/

Greg Sise, Managing Director

In association with ASX, Energy Link will run a one day course in Sydney on Novermber 9th, 2010. The course is intended for Australian companies with an interest in trading in the electricity futures and OTC markets in New Zealand. The futures market is undergoing a process of reform, with liquidity expected to increase significantly in the medium term, creating opportunities for traders.

The course will provide participants with an introduction to the key institutional, physical, commercial and structural drivers behind market behaviour and prices in the New Zealand electricity spot market which has operated since 1996.

A course flier is attached to this post.

Greg Sise, Managing Director