A New Dawn For Electricity Consumers

  • Max Bradford

The passing of the Electricity Industry Reform Bill in the House this afternoon marks a new, exciting dawn for electricity consumers, Energy Minister Max Bradford said.

"Lower prices and a real choice of who supplies your electricity - that's what the Coalition Government's electricity reforms are all about," Mr Bradford said.

"After many, many months of consultation with the industry, recent weeks have seen the Bill go through a vigorous and at times raucous process.

"But it is now time to look ahead to the benefits and to seize the new challenges the legislation brings.

"For consumers, the most important benefit will be lower prices - expected to be seen within a year to 18 months. This cannot occur without the reforms, whatever others might say.

"The new local lines companies will be able to continue to cross-subsidise line tariffs so that rural and small domestic consumers are not disadvantaged compared with the present.

"We expect that in most cases lines will continue to be owned by local consumer trusts, and that the trustees, as owners on behalf of their community, will be able to set the company's policy on tariffs as they see appropriate for their area.

"The reforms also mean consumers will soon have real choice about who they buy their power from and how much they are paying for it. New metering technology is rapidly becoming available - and is a key element in the reforms. "For the industry, I am aware the companies are facing a difficult adjustment period. Some seem to have been slow recognising the Government has been serious all along about reforming the industry, and that the clear signals given about the shape of the reforms for many, many months now were not just idle proposals.

"But it is time to put behind us the debate of recent weeks, and move forward. The Government looks forward to working with the industry to achieve the benefits of the reform package, and to smooth the path ahead as much as possible within the framework of the legislation."


General purpose

The Select Committee has added a general purpose statement (clause 1A), as follows:

"The purpose of this Act is to reform the electricity industry to better ensure that:

(a) costs and prices in the electricity industry are subject to sustained downward pressure; and

(b) the benefits of efficient electricity pricing flow through to all classes of consumers-


(a) effectively separating electricity distribution from generation and retail; and

(b) promoting effective competition in electricity generation and retail."

Part 1: Separation of lines and supply - preliminary provisions

This Part comprises definitions of the concepts used in the Bill. It also provides that the Bill does not apply to the Crown's involvement in both generators and Transpower.

Part 2: Separation of lines and supply - rules and exemptions

This Part prohibits "involvement" in both electricity lines and electricity supply businesses.
This prohibition will remove the incentives and ability for companies to: restrict access to their lines networks by competing retailers;
use lines business profits to subsidise their retail customers;
use lines business profits to subsidise uneconomic generation.
Increased competition in electricity retailing will:
put stronger pressure on prices; and
help to ensure that the price reductions resulting from the split of ECNZ are passed on to final customers.

Part 3: Separation of lines and supply - Enforcement and penalties

This Part puts in place penalties and remedies for ensuring compliance with the ownership separation rules. These are based on the penalties and remedies in the Commerce Act.

Part 4: Separation of lines and supply - Taxation

This Part provides certain exemptions from stamp and gift duty, which are intended to minimise the tax consequences of complying with ownership separation.

Part 5: Separation of lines and supply - Miscellaneous provisions

This Part includes provisions specifying that:
The Government is not liable for payment of compensation to companies affected by the Bill.
Regulations may be made under which companies and owners subject to the Bill must disclose details of their involvements, in order that compliance with the ownership separation provisions can be monitored.
Trustees can make certain amendments to trust deeds.

Part 5A: Price restraint on domestic and rural lines charges

A new part has been added to the Bill enabling the Government to impose price control on line charges for domestic and rural customers. These customers may have limited power to negotiate with lines businesses.
The provisions will enable the Government to restrict the rate at which electricity lines companies can increase their charges.

Part 6: Low cost switching system

The cost of metering and reconciliation systems is a key barrier to retail competition.
The Government has given the industry until 1 April 1999 to resolve the competition problems associated with this.
If the industry does not develop a suitable system by 1 April, the Government will introduce a mandatory 'default' system by regulation.

This Part of the Bill provides the regulation-making power to do this.

Part 7: Split of ECNZ

The Government is proposing that ECNZ be split into three competing SOEs.

The Bill provides for the Shareholding Ministers of ECNZ to specify the State-owned Enterprises to which the assets and liabilities of ECNZ must be transferred.

Having four competing generators in the market will significantly increase the level of competition, and will result in strong downward pressure on wholesale prices.

Supplementary Order Papers

Technical drafting changes to Part 1 of the Bill.

Amendments to Parts 2 and 5 to:

provide an exemption in respect of a restricted transfer under the Stock Exchange Listing Rules where a notice has been given before 23 June 1998 in respect of a transaction;

provide an exemption for sale agreements entered into before 23 June 1998 that are conditional only on the passage of specified Treaty legislation;

provide for the exercise of the right of first refusal in respect of Highbank hydro-electric station granted as part of the Ngai Tahu settlement;

provide an exemption, as an alternative to the mirror trust option, for companies that are widely held in the community and that are established with normal and freely tradeable shares;

express more clearly the non-specific interests rule;

clarify who are the transacting shareholders of mirror co-operatives;

provide an exemption from the Securities Act 1978 for securities offered for no consideration on the establishment of mirror co-operatives and trusts.