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Unison: Electricity Industry Reform Act exemption

Media Release


Issued 21 March 2006/112

Commission grants Electricity Industry Reform Act exemption to Unison Networks

The Commerce Commission has granted Unison Networks a limited exemption under the Electricity Industry Reform Act in relation its proposed investment in a wind farm. The proposed wind farm is to be built in the Maungaruru and Te Waka Ranges by way of a joint venture with Hydro Tasmania. Unison will not supply electricity from the wind farm to customers connected to its own network.

The EIR Act restricts relationships between electricity lines businesses and electricity supply businesses. A lines business may have an ownership interest in a renewable generation business as long as the two businesses are run as separate companies and kept at arms length, as defined by the Act’s arm’s length rules. The Commission can grant exemptions from the EIR Act and the arm’s length rules in certain circumstances.

Unison sought exemption from one of the arm’s length rules, and exemption from the rule stopping lines companies from entering into electricity hedges.

The key points of the Commission’s exemption are:

- Unison is exempted from the arm’s length rule that would otherwise forbid appointment of managers from the lines business to the board of the joint venture company;

- Unison must abide by all other arm’s length rules;

- Unison may enter into electricity hedges (financial instruments agreeing the price to be paid for electricity); and

- Unison may not retail the electricity to customers located on its own network; and

- the wind farm must not being connected to Unison’s supply networks.

“The Commission considers that Unison’s proposal would not create incentives or opportunities to inhibit competition, because Unison is not proposing to supply electricity from the wind farm to its own consumers,” said Commission Chair Paula Rebstock said.

The exemption will take effect from the date at which it is published in the New Zealand Gazette.

A public version of the Commission’s decision will be available as soon as practicable on the Commission’s website under Public Registers.

Background

The electricity industry has four main parts: electricity generation, electricity transmission, electricity distribution (lines businesses), and electricity retail. Only generation, distribution (lines), and retail are covered by the EIR Act.

Under the EIR Act, a company may have an ownership interest in both generation and retail businesses, but generally needs permission to own both distribution (lines) and generation, or distribution (lines) and retail. It seeks that permission by applying for an exemption under the EIR Act.

The purpose of the EIR Act is to reform the electricity industry to better ensure that costs and prices are subject to sustained downward pressure and the benefits of efficient electricity pricing flow through to all classes of consumers.

In considering EIR Act exemption applications the Commission evaluates whether an exemption would:

- create incentives or opportunities to inhibit competition in the electricity industry;

- create incentives or opportunities to cross-subsidise generation activities from electricity lines businesses; and/or

- permit a relationship between an electricity lines business and an electricity supply business which is not at arm’s length.

ENDS

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