ELECTRICITY REFORM MODIFICATIONS ANNOUNCED

  • Max Bradford
Energy

The Coalition Government Caucuses today endorsed the Electricity Industry Reform Bill with some minor modifications, which will be put to the Select Committee to consider, Deputy Prime Minister and Treasurer Winston Peters and Energy Minister Max Bradford said.

The major thrust of the reforms remains:

Splitting ECNZ into three competing Government-owned SOEs. Ownership separating of power companies into separate "retail" (selling or generating electricity) and "lines" (maintaining the poles and wires) businesses.

The Ministers said the Caucuses' decisions have taken into account issues raised with the Select Committee.

"The unnecessary concerns raised by the power companies' public relations campaign have been answered to the satisfaction of Government members, particularly in respect of rural and remote consumers," the Ministers said.

"Under the reform package, line companies will be able to continue to cross-subsidise line charges to smaller and rural consumers, just as they do now. Any change to tariffs will be a result of decisions by new lines companies and their owners - usually trust - and not central Government."

The Ministers said that given most new lines companies were expected to be owned by community trusts, it would be in their hands to satisfy any social concerns about appropriate charges. They are also required under current legislation (the Electricity Act 1992) to maintain all existing lines until at least the year 2013.

"The Government plays no role in what sort of line charges will apply unless there is clear abuse by lines companies, in which case the Government will apply price control," they said.

"Indeed, we are likely to see a much more satisfactory relationship between the competitive and monopoly parts of the business. On the retail side, competition will be able flower to the benefit of consumers.

The Ministers said the Government will put to the Select Committee considering the Bill the following changes:

the strengthening of price control. The provisions in the 1992 Electricity Act, which provided for regulation making powers to price control the supply of lines services, will be included in the Electricity Industry Reform Bill. This will enable the Government to prevent power companies unnecessarily increasing line charges to smaller and rural consumers.

an increase in the exemption threshold for lines businesses owning generation. The bill currently precludes lines businesses from also owning generation stations producing more than 0.5 GWh a year (supply for about 70 households). The proposed change increases this threshold for existing stations already owned by a power company with lines to a total of 5 MW a year (supply for about 5000 households).

an exclusion from the ownership restriction for lines and generation in areas where neither are connected to the national grid (such as the Chatham Islands, Stewart Island and Milford Sound).

the start date for the restriction in the Bill on integrated companies purchasing electricity companies until they have ownership separated to be moved to June 23. The bill currently sets this date as 1 April 1999. The date has been moved forward to remove the incentive for power companies to merge with others before 1 April 1999. Growing their businesses in this way prior to separation of the line and energy businesses would undermine the benefits of ownership separation.

any new investors in the industry will be subject to the ownership separation rules from June 23. In other words, a person or company buying more than a 10 per cent interest in lines will not be able to buy more than a 10 per cent interest in retail and generation. This will help ensure that the benefits of ownership separation flow through to consumers as soon as possible.