Electricity reforms accelerated by winter review

The Government is taking steps to accelerate the implementation of the Power Package reforms as a result of its review of this winter’s electricity supply difficulties.

Other changes will make the wholesale electricity market more transparent – and electricity retailers are being warned that unless they compete effectively, the Government may require them to offer a set amount of power on the hedge market.

Energy Minister Pete Hodgson said today it was clear from the review that the wholesale electricity market would have worked better if the changes specified in the Government Policy Statement of December 2000 had been fully implemented by the industry.

“The electricity industry has made significant process towards the changes required by the government, but not yet enough,” Mr Hodgson said. “I am now establishing milestones for market improvements specified in the Government Policy Statement to be implemented before next winter.”

These improvements will include:
·projections of system adequacy;
·disclosure of forward hedge prices;
·disclosure of generator offer prices into the market;
·development of real time spot market pricing and promotion of demand-side participation;
·arrangements for agreeing on and paying for new transmission investments to relieve constraints; and
·development of financial instruments to manage transmission risk.

“Further, in light of concerns about high spot prices, I intend to amend the Government Policy Statement to require public disclosure of generator offers into the wholesale market after 2 weeks instead of 3 months. This will give consumers and other interested parties an early opportunity to seek explanations from generators if questions arise about offer behaviour and prices.”

Mr Hodgson said he expected the New Zealand Electricity Market to introduce this further level of disclosure as soon as possible. The NZEM recently introduced free information disclosure about wholesale electricity prices, electricity demand and hydrology for hydro storage, which Mr Hodgson welcomed.
“I am also advising the electricity industry that the Government expects effective retail competition — and if this does not eventuate, the Government will consider further measures including mandatory tendering of hedges and separation of retail and generation businesses. I have asked officials to keep under review the option of requiring all generators to tender hedges for a percentage of their dry-year capacity.

“There are enough electricity retailers in the market for effective competition to occur, but only if regional monopolies do not develop. Incumbent retailers are therefore on notice that mandatory tendering may be used to open up the market if competition is inadequate.”

The government received 47 submissions and 12 counter submissions to the 2001 post-winter review. Opinion was divided on whether the wholesale electricity market had responded effectively to an extraordinarily dry winter, but a majority took the view that the market was more effective than past arrangements at signalling and managing constrained supply and increased demand.