You could have heard a pin drop in the electricity sector when Energy Minister Gerry Brownlee released his much-awaited Ministerial Electricity Market Review. Private operators and SOEs immediately hunkered down to work out what they thought the whole thing meant. Here, in a nutshell, is what NZ Energy & Environment Business Week thinks it means in some of the key areas:

The report finds retail competition is more of a worry than wholesale market competition. Given its terms of reference and the focus on the Wolak and Commerce Commission reports into wholesale market power, this is a bit of a surprise. But it reflects the universal scepticism among the officials and review group experts brought in to write the report about the wholesale market reports’ key findings of “over-charging.” While the review report acknowledges the wholesale market power exists and has been used (legitimately) in dry years to raise wholesale market spot prices, it is far more concerned by the rate of increase in retail power prices, especially for residential consumers. Expect scrutiny on retailer margins and competitive activity to intensify, but don’t expect electricity prices to fall.

The report creates an opportunity for momentum on long-stalled issues. Abolishing the Electricity Commission - widely blamed for doing too little to fix known electricity market problems during its six year existence - is the most obvious signal the Govt now wants action on those issues. The interesting question is whether some of the biggest, longest-standing problems will really get dealt with. Two examples: creation of a tradeable financial transmission right to allow hedging against grid constraints, and standardisation of lines company Use of System Agreements. Both have been on the agenda forever, and both are substantial barriers to increased retail competition.

Can the industry find swift consensus on how FTRs should work, and how hard will local network monopolies resist the need for more universally applicable rules and contracts? There has been plenty of media focus on the relatively unimportant recommendation to allow network companies to compete more as electricity retailers. But there has been almost no focus on the recommendation which, if successful, should remove the need for existing retailers to produce hundreds of tariff plans to cope with localised, and in some cases idiosyncratic, network company requirements.

The asset swap between Genesis and Meridian will never happen. As long as Meridian and Genesis get their heads together quickly and work out hedge contracts between them to better cover dry year risk, Brownlee has already all but ruled out this complex, time-consuming and potentially distracting proposal, which many see as no more than shuffling the deckchairs when the underlying issue should be able to be sorted out by contract. In his written statement on the review, Brownlee says the Govt will “need to be convinced” an asset swap is necessary and, in unreported comments at his press conference, said of the asset swap: “I’ve just hinted a way they (Meridian and Genesis) have got through that and I’m sure they’ll be considering that as we speak. They should have had a contract between them 10 years ago.” Meanwhile, neither Genesis nor Meridian are enamoured of proposals which would simultaneously rob Genesis of its brand-new gas-fired plant, e3p, while Meridian would take a huge hit to its renewables brand if forced to take on gas-fired generation. Even so, Meridian may yet find itself owning the Whirinaki reserve plant, which the Govt says it has no further use for.

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