Vector says a joint project by EnergyHedge and NZX to set up an electricity hedge market is a ‘veneer’.
EnergyHedge and NZX this week announced they were in discussions about setting up an exchange traded and centrally cleared electricity derivatives market.
But Vector chief executive Simon McKenzie said it was by no means a solution and the government either needed to mandate the types of products that can be offered or set up an independent body to monitor it.
The five large generators, Contact Energy, Genesis Energy, Meridian, Mighty River Power and Trustpower set up EnergyHedge but it is not an authorised futures exchange market.
The NZX runs it, under a contract after it bought the MCo electricity trading business.
Under Energy and Resources Minister Gerry Brownlee’s Electricity Industry Bill generators have until June 1 to establish a new clearing and settlement system, in a move to try and create a more liquid and competitive market, open to new players.
Clearinghouse facilities are needed, either by setting them up through NZX or EnergyHedge, or by using rival operator, the Australian Securities Exchange (ASX).
Speaking at a finance and expenditure select committee hearing on Wednesday about the bill, Mr McKenzie said the lines company was concerned the EnergyHedge/NZX market would be set up at the expense of new entrants.
“We’re concerned this will be accepted by the government as a solution to the hedge market.”
The Government wants standardised, tradeable contracts, a clearing house to act as a counter-party for all trades, low barriers to participation and low transaction costs, and market makers offering buy and sell prices with a maximum spread, to provide liquidity.
Yesterday, Mr McKenzie said there was conflict in companies that operated in the wholesale electricity market and also had a strong retail presence, then providing products on a hedge market.
“I’m not saying they’re going to do anything dodgy, but NZX proving a platform is by no means a solution.
“It would look like it’s more of a veneer.
“NZX providing a mechanism on behalf of EnergyHedge is a lot different from designing, developing and putting products out into the market.”
Vector’s solution would be to mandate the market or set up an independent body to closely monitor it.
“Otherwise you can’t expect effective retail competition.”
Andrea Deuchrass
Fri, 19 Mar 2010