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ACCC paves way for cheaper electricity in NSW

The ACCC has rejected a NSW Government proposal that would require the State owned electricity Generators and the future acquirers of Gentrader bundles to co-insure against outages.

NSW electricityThe ACCC decision against mandatory joint risk management arrangement (co-insurance) paves the way for lower electricity prices as Gentrader’s (defined below) are given the opportunity to self insure against risk in the most efficient way possible, leading to lower prices for consumers.

As a part of its Energy Reform Strategy NSW proposes to disaggregate its three electricity portfolios into five Gentrader bundles using a bidding process that is expected to be finalised at the end of 2010. The Gentrader model allows the ownership of power stations to be retained by the NSW Government, but the contractual rights to trade the electricity produced to be held by privately owned Gentraders. Each Gentrader has the right to trade the electricity into the wholesale market that is produced by the group of ‘generating assets’ (power stations) to which it is attached.

Under the proposed co-insurance arrangement, if there is an outage at one of the generating assets, which causes the level of electricity being produced to fall below a predetermined level to be set under the co-insurance arrangement, the Gentraders will be required to provide each other with financial compensation.

“The ACCC does not consider that there is a case for the Gentraders to be required to take part in a co-insurance arrangement that they may not want or need,” ACCC chairman Graeme Samuel said.

“There are a number of alternative risk management options available to the acquirers of the Gentrader bundles that can effectively and efficiently manage the financial risk that the co-insurance arrangement seeks to mitigate.”

While the ACCC did not receive a large number of submissions about the arrangements most industry participants that did provide comments expressed the
view that it would be more efficient for Gentraders to develop their own arrangements to manage this financial risk rather than be required to participate in a mandated coinsurance arrangement.

“More generally, the ACCC welcomes the broader reforms to the NSW electricity sector proposed in the NSW Governments proposed Energy Reform Strategy. These reforms should result in competitive benefits in the wholesale and retail supply of electricity in NSW.”Mr  Samuel said.

David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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