Electricity review released
The Energy and Resources Minister, Gerry Brownlee, says the Ministerial Electricity Market Review released today is an opportunity to address consumer concerns about rising power bills and security of supply.
The Ministerial Review offers a series of recommendations on improving electricity sector performance and was released today for a five week consultation period.
The review was conducted by the Technical Advisory Group appointed by the Minister and chaired by Dr Brent Layton with assistance by officials from the Ministry of Economic Development.
“I welcome the document. It is a well written report which offers practical solutions to many complex problems facing the electricity sector,” said Mr Brownlee.
“The primary goal of the review is to tackle the steep price increase to the consumer power bill over the last ten years, and to examine ways to reduce vulnerability in dry years,” said Mr Brownlee.
The review offers a range of recommendations including:
- governance improvements with the Electricity Commission replaced with an Electricity Market Authority.
- line companies allowed back into retailing
- compensation payments to be made to consumers if they face conservation campaigns.
- a reallocation of assets among SOE generator-retailers to increase competition in wholesale and retail markets.
“It is important to emphasise that this is a discussion document and my officials and I look forward to receiving feedback on the proposals - before any final decisions are made,” said Mr Brownlee.
“The government does find many of the recommendations appealing, including a system of offering compensation to consumers when asked to save power during a conservation campaign, ” he said.
“This idea really does create a big incentive for generators to manage their resource and ensure conservation campaigns are a last resort. If conservation measures are needed the consumer compensation will be an acknowledgement for inconvenience,” said Mr Brownlee.
“Ministers have discussed restructuring SOE generation assets and have ruled out option one and two as too costly and risky, and need to be convinced about the third option (ie asset swaps between Meridian and Genesis, he said.”
“Can I commend the Technical Advisory Group and MED officials for their work on this report. It is a very useful contribution and offers solutions to many difficult areas in the electricity sector I am especially pleased with the way it tackles the pricing issues which trouble many homes,” he said.
A five week period has been put aside for consultation. A copy of the report can be found at the MED website: www.med.govt.nz/electricity-market-review.
Electricity Market Review – Q&As
Why is the government reviewing the electricity market?
The government is concerned about security of supply, the affordability of electricity, and sector governance. The review is a timely and effective way to consider several reports and analyses on electricity market performance, and to develop proposals for improvements.
What is the objective of the review?
To improve performance of the electricity market and its institutions and governance arrangements in order to better achieve the government’s objectives for the electricity sector. A well-functioning electricity market should provide a reliable supply of electricity at competitive prices, that is, prices which are as low as possible consistent with ensuring reliable supply over the long term.
Who undertook the review?
An independent Electricity Technical Advisory Group (appointed on 1 April 2009) and the Ministry of Economic Development. The ETAG members are Dr Brent Layton (Chair), Miriam Dean QC, David Russell, Professor Lewis Evans, Stephen Franks and Toby Stevenson.
What is the scope of the review?
The Minister asked the review team to assess the performance of the electricity market, institutions and governance to date; identify problem areas; assess to the degree possible the costs and benefits of different reform options; and make recommendations to improve electricity market performance. A public discussion document outlining the review team’s preliminary recommendations is now being released for public consultation.
What was out of scope for the review?
The ownership and governance of State Owned Enterprises, the economic regulation (price control) of electricity lines, and wider energy sector regulation, such as gas regulation.
What did the review team consider?
The review team considered:
– The Electricity Commission’s review of the events of winter 2008.
– Available analysis of electricity market competition, including the Commerce Commission’s investigation into wholesale and retail market competition.
– The Law and Economic Consulting Group’s (LECG) report on electricity market governance for Business New Zealand.
– Current knowledge and perspectives on electricity market design and regulation.
– The market and regulatory experiences of other jurisdictions.
What are the main conclusions of the review team?
The review team has concluded that:
– The rate at which retail prices have risen, especially for residential consumers, appears excessive notwithstanding significant increases in the costs of generation. This is primarily attributed to insufficient competition in the retail market, and, to a lesser extent, in the wholesale market.
– The way in which dry years are managed can be substantially improved.
– The reliability and capacity of the transmission system can be improved.
– The governance arrangements for the sector can also be improved.
What is the timetable for electricity market reform?
The government expects to make final decisions on the reform package by the end of the year. Legislation will almost certainly be required to implement final recommendations. The government intends to conclude the review in a timely manner to ensure public, industry and investor confidence in the electricity market.
How do people have their say on the Electricity Market Review discussion document?
Submissions on the discussion document are to be received at the Ministry of Economic Development by 5.00pm Wednesday, 16 September, 2009. Further information on the public consultation process is available at www.med.govt.nz/electricity-market-review.