GNE - Genesis Energy

[Xerof]

Thankyou mate, so thats 100% in favour!! (you and I)

In any event, my accountant will look at it next year no doubt

thanks again

[Harvey Specter]

Agree. Held on balance sheet at zero cost and most likely, treated as a capital gain on disposal.

How were the GPG bonus shares treated. I never held GPG but assume treatment was the same.

[Beagle]

Make sure your accountant sees that company resolution you signed in the lead up to the IPO stating that your company relied on the bonus share scheme as a material incentive to purchase and without that incentive you felt the IPO price didn't make a compelling investment case. That written resolution stated the company intended to hold for at least an initial one year period. You did very well to write up such a resolution to invest before the IPO, superb corporate record keeping, well done

[Xerof]

Holy cow roger, I just looked up the resolution and it's virtually a word for word copy of your post!

[Snoopy]

The following is a quote from the 18th July 2008 submission to the Electricity Commission, by Genesis Energy.

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Specification for Frequency Keeping Performance

Genesis Energy welcomes the move from strictly input-focussed performance criteria to more output focussed criteria as a significant step in the right direction.
Previously, the performance criterion was expressed in terms of “all plant must provide 10 MW/min when frequency moves by X amount, whether frequency is inside the normal band or not”. The revised criterion recognises individual provider performance within the band via a standard deviation of frequency error, backed up by a requirement for all plant on average to provide a 10 MW/min ramp rate when outside the normal band.
Genesis Energy believes that this shift will not compromise or reduce overall frequency quality. The revised criterion recognises that frequency keepers have different types of plant, different control systems, and different processes for providing frequency keeping services. It is natural that each provider’s plant will have different standard deviation characteristics while maintaining frequency within the normal band.
The outside-of-band requirement to provide an on average ramp rate response of 10 MW/min is an improvement on the previous requirement to provide 10 MW/min constantly. This is a pragmatic move that recognises the reality that for some frequency errors, even if outside the band, the full 10 MW/min is not required whereas other errors will require in excess of 10 MW/min.
This change in specification for frequency keeping performance will allow Huntly Units 1 to 4 to resume participation in the frequency keeping market after having been forced out due to changes in the 2006 procurement plan. This represents a significant deepening of the frequency keeping market.

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Not quite sure what it all means except it may be tie up with power factor correction. Can any industry gurus elaborate for me?

SNOOPY

[PSE]

The following is a quote from the 2008 submission to the Electricity Commission, by Genesis Energy.

--------

Specification for Frequency Keeping Performance

Genesis Energy welcomes the move from strictly input-focussed performance criteria to more output focussed criteria as a significant step in the right direction.
Previously, the performance criterion was expressed in terms of “all plant must provide 10 MW/min when frequency moves by X amount, whether frequency is inside the normal band or not”. The revised criterion recognises individual provider performance within the band via a standard deviation of frequency error, backed up by a requirement for all plant on average to provide a 10 MW/min ramp rate when outside the normal band.
Genesis Energy believes that this shift will not compromise or reduce overall frequency quality. The revised criterion recognises that frequency keepers have different types of plant, different control systems, and different processes for providing frequency keeping services. It is natural that each provider’s plant will have different standard deviation characteristics while maintaining frequency within the normal band.
The outside-of-band requirement to provide an on average ramp rate response of 10 MW/min is an improvement on the previous requirement to provide 10 MW/min constantly. This is a pragmatic move that recognises the reality that for some frequency errors, even if outside the band, the full 10 MW/min is not required whereas other errors will require in excess of 10 MW/min.
This change in specification for frequency keeping performance will allow Huntly Units 1 to 4 to resume participation in the frequency keeping market after having been forced out due to changes in the 2006 procurement plan. This represents a significant deepening of the frequency keeping market.

---------

Not quite sure what it all means except it may be tie dup with power factor correction. Can any industry gurus elaborate for me?

SNOOPY

Snoopy in 2008 there were units 1-4 now two have been decommissioned this is well out of date.
But since you asked..
It does not tie in with power factor correction, which is done by the generator excitation systems (similar to the clutch on your car). The electricity system has no storage capacity so imbalances between load and demand mean that the generators and prime movers (turbines) will slow down or speed up in proportion to any energy imbalance. In other words the imbalance in power supply and demand is taken from the rotational kinetic energy of the connected generation plant.
There are two systems that act to regulate power from the prime mover they work by measuring the speed of the turbine and increasing power output to bring the grid frequency back to 50Hz. On the collection of hydro governors at Aratiaia plenty of them have flyballs that swing out and in and control the wicket gates which control water flow.
The governor acts for large imbalances to prevent blackouts, for small imbalances the regulators intend frequency keeping to keep things on a level. The governor system is analogous to the cruise control on an automatic car.
In 2013 40 million dollars was spent on frequency keeping, the reserves which the governors provide against grid collapse are another important source of income. GNE have historically been masters of ripping off the frequency keeping system by ramping up one generation plant while ramping down another. In these times past they were making much more money and providing much less.
I expect that the gentailers will continue to game the frequency keeping market but that over time sensible regulation will reduce their scope for playing games. No hope of GNE being anything but a negative growth company that Mr Market thinks is worth $2,185,000,000 (LOL).

[Snoopy]

Snoopy in 2008 there were units 1-4 now two have been decommissioned this is well out of date.

I am interested in whether the same effect could provide a profit boost for Genesis today, irrespective of the retirement of two of the Rankine units.

But since you asked..

The electricity system has no storage capacity so imbalances between load and demand mean that the generators and prime movers (turbines) will slow down or speed up in proportion to any energy imbalance. In other words the imbalance in power supply and demand is taken from the rotational kinetic energy of the connected generation plant.

There are two systems that act to regulate power from the prime mover they work by measuring the speed of the turbine and increasing power output to bring the grid frequency back to 50Hz.

We are getting a bit technical here for an investment forum. But to fill in some of the back story.

The power grid in New Zealand (as in almost all developed countries) is primarily an AC (Alternating Current) System. This means electrical energy is generated in regular waves with equally sized positive and negative peaks. These power waves have a certain frequency of repetition. If two generators feed power waves into the same grid and the frequency of those waves is not synchronised, then the peaks and troughs will not be synchronised. This can lead to undesirable downstream effects for whatever devices are ultimately using that power.

On the collection of hydro governors at Aratiaia plenty of them have flyballs that swing out and in and control the wicket gates which control water flow.
The governor acts for large imbalances to prevent blackouts, for small imbalances the regulators intend frequency keeping to keep things on a level. The governor system is analogous to the cruise control on an automatic car.
In 2013 40 million dollars was spent on frequency keeping, the reserves which the governors provide against grid collapse are another important source of income.

Who spent that $40m? It appears that Genesis were in line to receive some of that money. But who was paying?

GNE have historically been masters of ripping off the frequency keeping system by ramping up one generation plant while ramping down another. In these times past they were making much more money and providing much less.

And if I may put the counter argument on the POV of Genesis.

Huntly, when part of the old Electricorp, was kept always at the ready to step in should the hydro lakes get low. Keeping four Rakine units always ready to go is a cost, and there is no offsetting income if these units are not running. So when Genesis inherited Huntly they had a high cost power station, that was effectively providing an insurance policy to all other gentailers for free and little income. That meant Genesis was required to use the 'market system' to generate whatever income they legally could to satisfy their government shareholders. Some may say Genesis were gaming the system. Genesis would say they were getting a fair return on their assets.

I expect that the gentailers will continue to game the frequency keeping market but that over time sensible regulation will reduce their scope for playing games. No hope of GNE being anything but a negative growth company that Mr Market thinks is worth $2,185,000,000 (LOL).

I think what you are implying PSE is that Genesis could suddenly ramp down a Rankine unit, cause a fluctuation in the power frequency, and then be 'paid' to ramp up another unit to fix things again. Could they do the same thing by rampnng the same unit up and down? How could regulation alter such internal company behaviour?

SNOOPY

[Snoopy]

I am interested in whether the same effect could provide a profit boost for Genesis today, irrespective of the retirement of two of the Rankine units.

The particular reference that piqued my interest was on page 3 of the interim report for 2010:

"Genesis Energy has reported a better than expected financial performance in the six months to the end of December 2009. The unaudited net profit after tax of $64.6 million increased from $49 million in the comparable period in 2008. The increase was due in part to better trading performance, including increased revenues from the provision of frequency keeping services, offset somewhat by a lower contribution from our Retail business."

SNOOPY

[Jantar]

I am interested in whether the same effect could provide a profit boost for Genesis today, irrespective of the retirement of two of the Rankine units.

Those older style Rankine units are still the most suitable of all thermal generators for the New Zealand system. They are very reliable, able to be shut down overnight and restarted the next day, and fairly fast ramping. During the 1987 Waitangi Day outage in the upper North Island, those same units outperformed even the manufacturers specifications, and held on, keeping the system together, for quite some time after the inital fault at Whakamaru. It was when Karapiro hydro station tripped, 5 minutes after the intial fault, that Huntly finally gave up the struggle and the North Island, north of Whakamaru, went black. The longer that Genesis can keep those last two Rankine units available, the more it will assist their profitability.

We are getting a bit technical here for an investment forum. But to fill in some of the back story.

The power grid in New Zealand (as in almost all developed countries) is primarily an AC (Alternating Current) System. This means electrical energy is generated in regular waves with equally sized positive and negative peaks. These power waves have a certain frequency of repetition. If two generators feed power waves into the same grid and the frequency of those waves is not synchronised, then the peaks and troughs will not be synchronised. This can lead to undesirable downstream effects for whatever devices are ultimately using that power.

Two points here.
First off, any generator trying close its breaker onto the system without being correctly sychronised will suffer serious damage or even complete failure. PSE will be familiar with the commissioning tests required before that first ever synch where direction of rotation, excitation limits, transformer tap selections, timing of CB closure etc are all checked, before permission is even given for that first close onto a live system.
Second point, once a generator is synched and closed onto the system it is physically almost imposible for it to ever get out of synch. There is a situation where it can happen called pole slip, and there is protection included that will automatically disconnect the generator should it occur. In short there is no way that generators can be generating onto the system out of synch.

Who spent that $40m? It appears that Genesis were in line to receive some of that money. But who was paying?

In the instance quoted by PSE, Genesis received over half of that $40m. (This area is part of my expertise and it was while presenting this info that I met PSE a few years ago).
Generators are paid for providing frequency keeping services in two parts. First there is a half hourly fee which up untill 2013 was very high in the North Island.
Second is a constrained on/off amount whereby generators are compensated for either under or over generating. If over generating, they are paid the amount of their next offer band multiplied by the amount of overgeneration. If under generating they receive the difference between their offer band and the nodal price multiplied by the amount of under generation. In analysing some frequency keeping data I discovered that Genesis were sharing the frequency keeping duties between Huntly and Waikaremoana, and under generating at one station, usually Huntly, while overgenerating at Waikaremoana at a $5000 per MHwr price. There is a new pricing methodology now which prevents this from happening, and NZ has introduced a system of multiple frequency keeping which ensures that simultaneous under and over generation cannot occur.

Who was paying? Well, you and I were paying. All retailers are billed for the total cost of frequency keeping in proportion to their total supply. Genesis is around 18% of the total so they would have paid just under $8m and received around $20m. That year, the company I work for was paid around $3m and paid out around $13m.

And if I may put the counter argument on the POV of Genesis.

Huntly, when part of the old Electricorp, was kept always at the ready to step in should the hydro lakes get low. Keeping four Rakine units always ready to go is a cost, and there is no offsetting income if these units are not running. So when Genesis inherited Huntly they had a high cost power station, that was effectively providing an insurance policy to all other gentailers for free and little income. That meant Genesis was required to use the 'market system' to generate whatever income they legally could to satisfy their government shareholders. Some may say Genesis were gaming the system. Genesis would say they were getting a fair return on their assets.


I think what you are implying PSE is that Genesis could suddenly ramp down a Rankine unit, cause a fluctuation in the power frequency, and then be 'paid' to ramp up another unit to fix things again. Could they do the same thing by rampnng the same unit up and down? How could regulation alter such internal company behaviour?

SNOOPY

As per my previous paragraph, this is not what PSE was claiming. What they were doing was much simpler. Lets imagine that an additional 10 MW was required to manage the frequency, the nodal price is $60 and Genesis offer is $45 at Huntly and $5000 at Waikaremoana. Waikaremoana could ramp up there very quickly, but instead of stopping at 10 MW would go to 15 MW. Meanwhile the Rankine unit would back off by 5 MW, so keeping everything balanced. Genesis would get paid $75000 (15 * $5000) at Waikaremoana and $75 (5 * (60 -45)) at Huntly. So overall would be paid more than $75,000 when the correct amount would have been $25,300.

[PSE]

That was some very nice work by Jantar which I shamelessly splurge out onto the internet.
I don't feel bad about this because if people knew what a failure the gutting/corporatisation of the electricity industry has been they wouldn't support/allow it.
Rather than playing games we used to try and make cheap reliable electricity and three generations of the same family were often found working together in the hydro electricity department. Communities were built and our technical competence was world leading.
It was not perfect but its failures could have been seen objectively and it was a pretty nice place to start.
Now we have factions in competition in an industry where competition cannot naturally exist.
We have MRP mothballing a 5 year old GT at Southdown while Todd builds another of the same type to cover their portfolio. We have CEN mothballing a 57% efficient CCGT while 40% efficient peakers are being built.
Adam Smith would be appalled, it certainly isn't free market theory but an ideology pushed by investment bankers who made a lot of money and have left the nation to pick up the wreckage.
I have not met anyone who worked for the NZED or its predecessors who thinks what has happened has been for the best. Which is staggering right an example of pure totalitarianism surely.
Why wouldn't you consult with the industry on how they should be run?