The Australian Competition and Consumer Commission has issued its draft determination for authorisation of electricity vesting contracts in South Australia.
The draft determination proposes authorisation of the contracts without any conditions.
The vesting contracts are between ETSA Power (the SA electricity retailer for franchise customers) and the three SA generators (Flinders Power, Optima Energy and Synergen) and involve a portfolio of contracts, which include:
- fixed-price swap contracts between ETSA Power and Flinders and Optima, ending 31 December 2002;
- contracts with one-way price caps between ETSA Power and all three generators, that limit the prices paid by ETSA Power. These end with the introduction of new generation or on 31 December 2002;
- two fixed-price contracts allocated to contestable customers, the volumes of which have since been converted into market contracts; a contract to cover the running of Playford power station during extreme peak periods, which ends with the introduction of 100MW new generation or 31 December 2002; and
- a set of insurance contracts which support the main contracts (in the event of planned and unplanned outages) and ETSA Powers exposure to the interconnector.
These end with the introduction of 450MW of new capacity or on 31 December 2002.
"The draft determination addresses such issues as the contracts prices and volumes as well as the duration of the contracts in light of the objectives of the contracts and the concerns raised in submissions," ACCC Chairman, Professor Allan Fels, said today.
"In particular, the ACCC paid close attention to the fact that these contracts will operate in a relatively high-priced, volatile region of the national market. The reasons for these high spot prices and volatility are the ongoing reliance of SA on the Victorian interconnector, the overall tight balance of supply and demand and the swings in SA weather patterns.
"On balance, the ACCC considers that these contract arrangements include an appropriate set of protections and incentives that reduce the risks and price outcomes faced by ETSA Power and the franchise and grace period customers it supplies".
Professor Fels acknowledged that the draft determination differs from the ACCC decision on NSW vesting contracts, particularly in accepting 31 December 2002 as the end date for the contracts.
"The ACCC examined this issue closely and weighed up alternative dates, such as December 2000 and December 2001, as well as giving ETSA Power the option to end or change the contracts from 2001 onwards.
"In the end, we considered that the feasibility of these alternatives depended on a number of critical assumptions about demand growth and the introduction of new capacity or interconnection. These assumptions could be undermined at a later date by a change in market circumstances which, in turn, could mean ETSA Power and customers might be at more risk if the contracts ended at an earlier date.
"This contrasts with NSW and Victoria which has a much more established and liquid contract market and where excess capacity will continue to have a marked influence on spot and contract prices," Professor Fels said. "Hence the prospect that retailers and customer will get better deals when vesting contracts finish was a real consideration in the NSW decision. In SA its not as certain the market in 2001 will deliver the same benefits to customers".
The ACCC also advised interested parties that, should a pre-decision conference be called on the draft determination, it will be held in Adelaide on 11 November 1999.