New legislation for electricity and gas industries

The Electricity and Gas Industries Bill introduced to Parliament today will set the legal framework for the next phase in the development of New Zealand's electricity and gas industries, says Energy Minister Pete Hodgson.

"The Bill puts in place all the decisions made by the Government this year on electricity supply security and the governance of the electricity and gas industries", Mr Hodgson said.

"The electricity and gas sectors are critical to New Zealand's economic growth. We face continuing challenges to ensure security of supply in both sectors at the best possible prices. These include the depletion of the Maui gas field, our vulnerability to dry hydro years and growth in demand for electricity. At the same time we aim to make continuing progress towards a sustainable energy future. This Bill is a key part of the Government's response to these challenges."

The Government's decisions on electricity supply security and the establishment of the Electricity Commission were announced in May this year. A draft Government policy statement on electricity governance, revised in line with these decisions, was released for comment in September.

A Government policy statement on the development of New Zealand’s gas industry, released in March, sets out the Government’s expectations for better gas wholesale market arrangements and industry governance. The industry is working on plans for a new self-governance structure and the Bill contains backstop regulatory powers in case this work fails to deliver results.

"The Bill's regulatory powers in respect of the gas industry may be further refined as we work through the legislative process in parallel with the industry's efforts," Mr Hodgson said. "The Government and the Gas Industry Steering Group, led by the Rt Hon Jim Bolger, have an open and cooperative working relationship. I will be open to considering proposals that emerge from the industry as it works through the issues and clarifies its views.

"The Government's objectives for both electricity and gas are to have energy delivered to consumers in a safe, efficient, fair, reliable and environmentally sustainable way. This Bill will enable further changes to be made to the electricity and gas sectors to take us further towards that goal."

The Bill:

updates the Electricity Act to reflect the establishment of the Electricity Commission;

provides enhanced powers for ensuring security of electricity supply, including enabling the Electricity Commission to contract for reserve energy supplies;

provides further electricity regulation-making powers relating to consumer protection, promotion of retail competition, improved information for market participants and development of distributed generation;

amends the Commerce Act to clarify the interface between the functions and powers of the Commerce Commission and the Electricity Commission in relation to control of electricity lines companies;

provides regulation-making powers for use if the gas industry does not deliver improvements on certain specified issues;

enables the Electricity Commission to take on responsibility for gas industry governance if the gas industry's proposed self-governance arrangements do not deliver on the Government’s policy objectives, and for the Commission to be renamed the Energy Commission in that event;

provides regulation-making powers under the Crown Minerals Act to require more extensive disclosure of information relating to gas and oil reserves.

The Bill is expected to be referred to the Commerce Committee for consideration.

Below: a summary of the main provisions in the Electricity and Gas Industries Bill

The Electricity and Gas Bill: a summary of the main provisions

The Electricity and Gas Industries Bill amends the:

Electricity Act 1992 Gas Act 1992 Electricity Industry Reform Act 1998 Commerce Act 1986 Crown Minerals Act 1991

Amendments to the Electricity Act 1992

The Bill:

makes amendments to reflect the establishment of the Electricity Commission including:

updating the specific outcomes the Government wants the Electricity Commission to achieve, including in relation to security of supply;

clarifying that the Commission’s functions include promoting efficient use of electricity;

removing all references to and obligations on industry self-governing bodies.

provides additional regulatory powers relating to consumer protection including:

setting minimum terms and conditions for contracts with domestic consumers, including provision of information on bills;

promoting retail competition, for example through customer switching protocols or provisions for retailers' use of meters;

requiring all electricity distributors and retailers to participate in a complaints resolution scheme (such as the Electricity Complaints Commission) approved by the Electricity Commission

provides a “toolbox” of regulation-making powers relating to improving security of supply. The Government does not expect all these powers to be used, and it expects the Commission to achieve its objectives primarily through information provision and contracting, but regulation-making powers are provided for use as required covering the following matters:

securing reserve energy as a backstop for very dry years and in the event of other supply disruptions, including setting quantities and operating parameters for use of reserve energy to minimise impacts on the ordinary market;

requiring disclosure of information on a range of issues such as hydro lake levels and inflows, plant availability and thermal fuel stockpiles;

providing for generators to hold reserve fuels and plant capacity;

providing for generators to offer by tender minimum volumes of wholesale contracts or hedges (including terms and conditions of those contracts excluding price), and to post buy and sell prices for contracts;

providing for buyers of wholesale electricity to have minimum levels of hedge and contract cover.

provides for regulation-making powers to set minimum terms and conditions for retailers to purchase surplus electricity from distributed generation units owned by domestic consumers;

provides for increased regulatory certainty, by limiting the Minister’s powers in various ways, such as:

precluding the Minister recommending regulations unless the Electricity Commission has first made a recommendation;

limiting the Minster’s powers to amend the recommendations of the Commission;

deleting the requirement on the Commission to consult the Minister prior to making recommendations;

deleting the prohibition on a court finding a regulation is invalid because of inadequate consultation (although a grace period of six months is provided to avoid unnecessary regulatory uncertainty);

deleting the ability of the Minister to impose accountability requirements on industry self-governance bodies.

amends the powers to levy industry participants so that it includes the costs of providing reserve energy and also the funds advanced by Transpower to finance the development of rules relating to transmission services;

provides for continuation of Transpower’s transitional pricing methodology until 31 December 2004.

Amendments to the Electricity Industry Reform Act 1998

The Bill:

provides exemptions to allow lines businesses to own generation up to 25 MW or 10 per cent of their maximum demand, and for any reserve energy contracted to the Electricity Commission;

provides that lines companies may own generation up to the new limits at any location (current legislation requires any exempt generation to be connected to the local line owner’s network).

Amendments to the Commerce Act 1986

The Bill:

amends the Commerce Act to clarify the interface between the functions and powers of the Commerce Commission and Electricity Commission in relation to controls on electricity distribution companies:

all Commerce Act powers relating to Transpower’s pricing methodology are repealed, and the Commerce Commission may not set quality standards for Transpower or pricing methodologies for lines businesses (the Electricity Commission will hold these responsibilities);

the Commerce Commission will be required to take into account electricity governance regulations before exercising any of its “price” control powers on electricity lines businesses in relation to quality standards for Transpower, pricing methodologies for lines businesses, and levies payable.

provides for the transfer to the Electricity Commission, by Order in Council, all the powers of the Commerce Commission in respect of the control regime for electricity lines. These powers can be transferred either for Transpower or all distribution businesses only after 31 December 2005 and if certain tests are met.

Amendments to the Gas Act 1992

The Bill:

contains powers to expand, by Order in Council, the functions of the Electricity Commission to govern gas as well, and that it be renamed the Energy Commission;

provides regulation and rule making powers for use if the gas industry fails to deliver on certain issues or if the self-regulatory governance model seriously fails, with the conditions that:

regulations or rules relating to the wholesale gas market, processing facilities, transmission and distribution matters may only be made if the Energy Commission is established;

other regulation and rule making powers, particularly relating to consumer retail issues, including complaints resolution, can be exercised whether or not the Energy Commission is established.

Amendments to the Crown Minerals Act 1991

The Bill provides regulation-making powers to require disclosure by permit holders of accurate, detailed and timely information relating to gas and oil reserves and production, with the aim of improving investment decisions and enhancing security of gas and electricity supply (gas is used extensively for electricity generation).

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