Transpower
owns the national power grid. It also
controls operation of the grid, deciding where and when power flows through the
system. Operating decisions are based on
an auction system with retailers choosing from spot prices posted by generators
for half hour periods. A critical point
on the grid is the Cook Strait power link: the High Voltage Direct Current
(HVDC) link. Power can pass in either
direction under the Strait through two cables.
Capacity has to be carefully managed.
The higher the load, the greater the energy lost by heat and the greater
the risk of catastrophic failure.
In 2016
Transpower changed operating protocols for its HVDC link. This involved rebalancing how much current each
cable carries when operating jointly.
There were benefits. Transpower
maintenance costs were reduced. Less
reserve power was required on standby to cover an emergency should there be a
system failure. Critically, the new
protocol reduced the amount of North Island generation needed on standby as reserve.
The High
Court was told this change was of little moment to generators and
retailers. They operate in a dynamic
market, dealing predominately in the spot market. Traders in electricity futures took a
different view. They are assessing price
risk over time frames of up to two years.
They were locked into long-term futures contracts now affected by the
HVDC changes. Changes to HVDC protocols had ‘knock-on’ effects though the 250
network locations used for pricing derivatives.
Derivatives
trader, City Financial Investment Company (New Zealand) Ltd, complained to
government regulator the Electricity Authority alleging Transpower was in
breach of service levels set out in the industry Code. The Authority ruled Transpower was not in
breach. Transpower had maintained the
energy capacity of the HVDC link, a key underlying objective of the Code. This decision was challenged unsuccessfully in
the High Court. Minimum HVDC service
levels specified by Transpower were no different before and after the 2016 changes,
Justice Cooke said.
The
relationship between Transpower and the Authority was criticised by Justice
Cooke. When developing its new HVDC
protocols, Transpower’s strategy was to target an Authority member to assist
getting Authority approval for the changes.
And then when City Financial later objected to its implementation,
Transpower had the Authority comment on its draft response to City
Financial. When City Financial later went
to the Authority alleging a breach of the Code, the Authority was then in the
position of ruling on the correctness of a stance it had previously helped Transpower
formulate.
City Financial Investments Co (NZ) Ltd v. Transpower - High Court
(21.06.18)
18.126