Bridget Abernethy: ERANZ chief executive on the market options available to companies amid power price surge

The Electricity Authority said market options were available to big power users during the winter price spike that some blamed for their closure.

The closures prompted the EA – the regulator – to investigate the options available to big power users, and it found hedges available tended to be lower than the overlapping average ASX price at the time.

Last month, a number of Kiwi businesses, including Pan Pac, Winstone Pulp and Oji were forced to close, citing surging electricity costs.

ERANZ chief executive Bridget Abernethy says the prices were higher than usual - but the companies had alternative options to bring their costs down.

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Episode Transcript

Speaker 1 (00:00):
Now, on the subject of those mills closing this winter
and blaming electricity prices for it, it turns out they
did actually have the option to bring down their power bills.
The Electricity Authority has put out a report saying market
options were available to the big power users during this
winter's price spikes. Bridget Abinathy is the chief executive of
the Electricity Retailers Association and with US Haybridge it oh. Hi,

(00:21):
so are we basically calling BS on their claim that
the power was too expensive or not complete? BS?

Speaker 2 (00:28):
Look, I can't comment on the commercial arrangements of the
individual companies, but I think what the report shows is
that hedging options were available to industrial and commercial customers
right through that period of high volatility, and I think
that managing risk appropriately is an important part of operating

(00:50):
in a highly volatile wholesale electricity market.

Speaker 1 (00:54):
How much cheaper were those options than what was available
on the market.

Speaker 2 (01:00):
It's sort of shown on the The EA report shows
that they offered prices that overlapped with the A Ssex curve.
What I will say is, I think we know that
the hedge prices during that period were higher than usual,

(01:20):
but it's important to note that it's it's like trying
to find a mortgage when interest rates are high.

Speaker 1 (01:25):
Yeah, but I don't really understand what that means. So
how much cheaper would it have been if they if
they use the alternative options?

Speaker 2 (01:33):
Well, I don't think I can answer that easily. It's
every every individual company would have had different arrangements. I
think what the EA is trying to show is that
the prices that were offered were reasonable given the AX curve.
I think that that's the main point. I just want
to point out that we know that those those prices

(01:56):
were higher than normal, but that's because the prices were okay.

Speaker 1 (02:01):
So as we can take that doesn't mean necessarily, though,
that their businesses would have been viable, right if they
had taken these Because it was still high power prices.
All we can say. We can't say that it would
have saved them. We can't say that it would have
made their businesses, as I say, viable, but we just
can say it was cheaper than what they were doing.

Speaker 2 (02:18):
I think, look, all industrial users in this country know
that our wholesale market is volatile because we depend upon
intermittent renewables like wind, solar, and hydro. So the prices
go up to very high levels and they go down
very low. We know from the EA report that they
got as low as one dollar a megawatt on the

(02:40):
first of September. So I think the point is that
catching is a really important risk management tool for industrial users.
Being underhedged can allow users to get the benefit of
lower prices, but it also carries the risk that when
those prices rise, as they did this winter, that they

(03:02):
are exposed to those prices too, And I think it's
really important. It's a comment that Minister Brown signaled in
his recent government policy statement that sophisticated consumers have to
manage their risk appropriately given our highly volatile market.

Speaker 1 (03:19):
I mean, bridget, Look, I guess the thing is what
we're arguing about is stuff on the margins, isn't it.
The truth of the matter is that we are no
longer a country where if you want to, if you
want to manufacture cheap stuff like this, where you can
do it because we're just too expensive. Isn't that the truth?

Speaker 2 (03:35):
Look? I don't think I can. I think the main
comment from my perspective is that options are available to
help manage risk, and we know our wholesale market is
volatile because we've made a choice to move toward renewable
intermittent renewables, and that just means that we have greater volatility.

(03:55):
I think. I look at the really good report done
by a group called m DAG that they provided to
the EA last year, and you know, it's one of
the key points in the report is we do have
that volatility and hedge hedges are a really important part
of managing that risk.

Speaker 1 (04:16):
Yeah, Richard, thank you so much for talking us. I
really appreciate you. On That'sridget Abanathy, who's the chief executive
of the Electricity Retailers Association here in New Zealand. For
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