Electricity Regulation: Tweaking The Electricity Industry Bill – What To Expect
April 20th, 2010
The Finance and Expenditure Select Committee isn’t due to report back to Parliament on the Electricity Industry Bill until 15 June, but the outline of likely tweaks is clear from a trawl through the submissions. Here’s our pick for what will change:
• The Committee will agree with MightyRiverPower that the Technical Advisory Group got it wrong by assuming its joint venture geothermal developments with iwi in the central North Island are controlled by MRP. MRP told the committee these “merchant generators” have no retail customers and are potentially important players in a more vibrant electricity hedge market, representing around 2000GWh annually of baseload generation. This “mistake” means if the proposed MRP/Meridian virtual asset swap goes ahead unamended, MRP North Island wholesale market risk “would be driven to levels which cannot be mitigated,” leaving MRP far more heavily exposed to credible market risks than the reform group intended. It is seeking a change accordingly and looks like it will get it. The most likely outcome is the 3000GWh of unmatched forward generation required for the new hedge market will be lowered.
• Transpower will not have its monopoly position entrenched in the Bill. Numerous submissions said Transpower should be contracted as System Operator, rather than given the right by statute. How else to keep a monopoly provider governing billions of dollars of critical infrastructure on its toes? An easy decision, in our view.
• Extended periods of time for Ministerial intervention in the wholesale hedge market are likely to be scaled back.
• Thresholds for network companies to become electricity retailers, including rules on operational separation, are likely to undergo considerable rejigging, although just what the outcome will look like is unclear. The strength of the attack mounted on network companies by the gen-tailers has caught officials off-guard. At issue is the networks’ capacity to use local monopolies to cross-subsidise competitive retail offerings in their own patches, and potentially stifle national competition. Some re-thinking is taking place and the most likely offsetting win for the networks would be to relax thresholds for operational separation.
• Don’t expect any movement on physical asset swaps – a move which worries both Business New Zealand and Norske Skog. Business NZ is particularly concerned Brownlee is throwing too many balls in the air at once to be able to judge what’s working and what isn’t. This could threaten the integrity of the reforms if, a couple of years down the track, the worries about retail competition, wholesale market dominance and illiquidity remain.
• It’s our pick Brownlee won’t be going anywhere near regulation for smart meters or feed-in tariffs for small-scale renewable generators anytime soon.
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