Spiking Prices: How Economics, History and Law have shaped the New Zealand Electricity Authority's UTS Regime
Farnworth, S. E. (2012). Spiking Prices: How Economics, History and Law have shaped the New Zealand Electricity Authority’s UTS Regime (Thesis, Master of Laws (LLM)). University of Waikato, Hamilton, New Zealand. Retrieved from https://hdl.handle.net/10289/6604
Permanent Research Commons link: https://hdl.handle.net/10289/6604
The March 26th price spike in Genesis Energy’s Huntly power station prices has focussed attention on the regulatory powers of the newly established Electricity Authority. The Authority’s weapon of choice, the Undesirable Trading Situation regime, allows them to intervene in the market and was applied in this case to reset prices retrospectively. The decision caused a storm of controversy in the media and numerous submissions, both for and against, from market players. The Authority has a mandate to regulate competition in the electricity markets and because of the overlapping jurisdiction, has signed a Memorandum of Understanding with the Commerce Commission. How the two bodies interpret and apply their co-existing statutory obligations will be of great interest to businesses operating not just in the energy sector, but across the whole economy. For those in the electricity industry any indication as to how the Electricity Authority intends to regulate wholesale electricity markets will be crucial for implementing future market strategies and investments. The question for this paper will therefore be to assess the decision in light of these overlapping jurisdictions, the policy documents used to guide each decision maker, and the previous decisions which may have influenced or misled market players. Given the focus on efficiency in New Zealand’s competition law, particular attention will be paid to the economic history of theories of contestability, the total surplus standard, price squeezes and wealth transfers, and the interplay between static and dynamic efficiency. The conclusion will be that the March 26th decision, although made under a very different legislative scheme to the Commerce Act, bears remarkable similarities to the general competition law. The decision applies a very similar remedy to the standard ECPR counterfactual analysis seen in s 36 prosecutions. The main difference between the two regimes is that the UTS provision is not applied punitively, reflecting a determination on the Authority’s part to maintain flexibility and restore orderly trading.
University of Waikato
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