Energy sector transformation to benefit consumers
Energy and Resources Minister Gerry Brownlee today announced a suite of changes to New Zealand's electricity system to improve competition and constrain price increases, increase security of supply, and ensure effective and stream-lined governance.
The majority of the changes are contained in the Electricity Industry Bill, which will be introduced to the House tomorrow.
"Achieving security of supply and retail competition, while ensuring the signals for investment in new generation are clear, form the purpose of the Bill," says Mr Brownlee.
The Ministerial Review into the electricity market, released in April, found all consumers were paying prices higher than justified by the cost of new generation, with residential customers particularly hard-hit.
There was also a widespread perception New Zealand had a fragile and vulnerable electricity supply system, and there were a number of concerns about the current governance arrangements.
Key initiatives in the Electricity Industry Bill to beef up competition include:
Transferring Tekapo A and B power stations from Meridian Energy to Genesis Energy, and transferring the government-owned Whirinaki to Meridian Energy;
Meridian, Genesis and Mighty River Power undertaking "virtual asset swaps" through a 15 year contract, ensuring the ability of each company to provide increased competition in the island where they currently have little to no generation capacity;
Requiring all major electricity generators to put in place an accessible electricity hedge market;
Allowing lines companies back into electricity retailing, subject to strict controls; and
Establishing a $15 million fund over three years to promote customer switching between retailers.
"Competition is vital in order to constrain future price increases for Kiwis. I've often said no government can promise to lower the price of electricity - but what we can do is make sure our policy settings are as good as possible to constrain future increases and promote competition, efficiency and choice," says Mr Brownlee.
Initiatives to increase security of supply include:
- Requiring generators/retailers to compensate consumers in the event of conservation campaigns or a dry-year power cut;
- Abolishing the reserve energy scheme; and
- Increasing the attractiveness of gas exploration and development.
"I'm particularly attracted to the idea of requiring generators/retailers to compensate consumers in the event of conservation campaigns," says Mr Brownlee.
"This will force electricity retailers to manage their own risk, and means the risk of dry years will be diminished because power companies will be hit in the pocket when this occurs. Consumers will have the confidence of knowing they will get some cash back if they are ever asked to save power in the national interest," says Mr Brownlee.
Initiatives to ensure effective governance include:
- Abolishing the Electricity Commission and replacing it with a slimmed-down Electricity Authority, with far fewer objectives and functions than the current Commission;
- Establishing a Security and Reliability Council to monitor Transpower's performance and advise on security of supply; and
- Transferring responsibility for grid upgrade approvals to the Commerce Commission.
"The Electricity Commission has had a large number of overlapping responsibilities with other entities involved in the electricity sector, and consequently has not been nimble and responsive enough to meet industry needs", says Mr Brownlee.
"The new Electricity Authority will have a clear mandate to get on with the job of ensuring the market runs efficiently.
"I believe the changes in this Bill will be to the advantage of New Zealanders," says Mr Brownlee.
The Bill will be sent to the Finance and Expenditure Committee.
Ensuring effective and stream-lined governance (pdf, 64 Kb)
Increasing security of supply (pdf, 28 Kb)
Improving competition and restraining electricity price increases (pdf, 198 Kb)