Monday, May 15, 2006

Major reformation of NZ energy complex to be announced in Budget.PT3

Further to our posts on possibilities in the budget and the recommendations from the IEA,there are strong signals for reformation of the NZ electrical sector.

1 Seek to allay stakeholder concerns about certainty and predictability of
regulatory policies, institutions and regimes in order to underpin appropriate
energy market investments.

2 Ensure security of electricity supply through appropriate regulatory policies
that do not inhibit infrastructure investment in either transmission or
generation, in light of the country’s medium-term supply constraints.

3 Ensure regulatory independence of the Electricity Commission from the

4 Consider establishing a streamlined merit-based appeals mechanism for
energy-sector decisions from the Commerce and Electricity Commissions;
consider implementing or strengthening time limits for energy-related
hearings and decisions from the Electricity Commission, the Commerce
Commission and the Environment Court.

5 Remove any inefficient barriers to entry for new market participants.
6 Revise the triggering mechanism for the Whirinaki power plant so that it is
triggered only by hydro levels; ensure that the Electricity Commission’s
ongoing tendering for capacity minimises any distortion of the competitive

7 Ensure that the Commerce Commission’s threshold mechanism provides
appropriate incentives for network investment and that regulatory reviews
are completed in a timely manner.

8 Consider providing for ex ante approval of investment projects on request in
order to increase regulatory certainty.

There are a number of interesting signals being sent that there is a possibility of further deregulation of the line companies and the vertical intergration of Generators/retail operators in the energy market.Similar to what has happened with telecom and its local loop.It was suggested to the IEA that the generators may be limited to wholesale operations only and the creation of financial insturments(futures) for forward selling of electricity to met investment requirements.This was stated as in working papers only but may be signalled in the budget.

The technical limtation to new entry players by line distribution companies is one part that needs serious analysis and it is far beyond the expertise of the Electricity commission.It would better for NZ to adapt its own standards and remove the audit function from the Australian standards system.


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