System Operation and Wholesale and Related Markets
75. The Electricity Commission should take primary responsibility for achieving the Government's policy objectives for electricity in relation to:
- common quality and real time security
- dispatch and pool rules
- reconciliation and settlement
- information disclosure to improve market efficiency, including:
- aggregate hedge and contract prices and volumes
- offers by generators
- minimum prudential standards.
Hedge Market Transparency and Liquidity
76. A transparent and liquid hedge market is a critical component of an efficient wholesale market. It enables market participants to manage their risks and facilitates retail competition. Concerns are regularly expressed that the current hedge market does not operate particularly well.
77. The Government has amended the Electricity Act 1992 to provide regulation-making powers to establish and promote hedge markets. As with other regulation-making powers, the Commission may only recommend regulations if it has first established that there are significant problems that are not resolvable through voluntary arrangements and co-operation. The regulation-making powers cover:
- disclosure of information on hedge and contract volumes and prices
- requiring generators to offer by tender a minimum volume of contracts that enable the price risks associated with the spot market to be managed, including the terms and conditions of those contracts (excluding prices and reserve prices)
- requiring generators to post buy and sell prices for hedge (including futures) contracts; and
- requiring buyers of electricity from the wholesale market to maintain minimum levels of hedge and contract cover with electricity generators.
Financial Transmission Rights
78. Under marginal cost nodal energy pricing, different locations experience different prices caused by transmission losses and constraints. The Electricity Commission should oversee the development of financial transmission rights (FTR) to enable market participants to manage risk in respect of transmission losses and constraints. A statement of policy concerning financial transmission rights is attached as Appendix One.
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