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New Zealand

An open wholesale electricity market is expected to be fully operational by October 1 1996. This follows the successful introduction earlier this year of an interim electricity market and the split of the state-owned generator, Electricorp, into two competing generators.

The government's overall policy objective in creating a wholesale electricity market is to ensure the continuing availability of energy services at the lowest possible cost to the economy as a whole, consistent with sustainable development. The introduction of the wholesale electricity market is expected to create an environment which will enable wholesale electricity prices to be determined by competition. It is also hoped that competition will result in improved efficiencies, reduced risk of environmental damage and will encourage new private sector generators to enter the market.

Under the open wholesale market, a pooling mechanism will operate. Generators will offer to supply electricity for sale to the pool. Similarly, electricity retailers and large users will offer to purchase quantities of electricity at certain prices from the pool. The Electricity Market Company (EMCO) will operate the market and will match sellers and purchasers. The spot price for the pool will be determined by EMCO one day ahead as the price at which the market will clear based on the offers to sell and bids to purchase. The spot price will not be subject to any cap or floor.

Generators and purchasers will be able to enter into various contracting arrangements outside the pool and trade their positions within the pool. Purchasers will also be able to manage risk as they consider fit.

EMCO will operate the market clearance and settlement functions through which generators are able to obtain payment from purchasers of electricity. Prudential security requirements will be imposed on market participants to protect the market in the event of default.

Denis Clifford and Chris Maher

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