08 July 2004

Electricity Commission prepares for new functions

Energy Minister Pete Hodgson today released proposed costs for the expansion of the Electricity Commission's (EC) responsibilities through the Electricity and Gas Industries Bill.

"The Electricity Commission was established because industry self regulation had failed. Since it took over, it has quickly come to grips with the work that had been left undone under the old arrangements. In addition, 150 MW of reserve generation has been built and commissioned at Whirinaki," says Energy Minister, Pete Hodgson.

This year, households will pay around $18.20 for EC's work and reserve generation. This compares to an estimated $9.45 last year under the industry arrangements. The additional $8.75, 0.11 cents per unit of electricity, breaks down into $3.25 extra for essential work on consumer issues, energy efficiency and work on the transmission grid that the industry had failed to do; and $5.50 for reserve generation."

One new area of work introduced through the Bill is on energy efficiency. The Commission’s first year funding is for a mix of pilot electricity efficiency programs and research and investigation, to determine the level of investment that would lead to the biggest benefit to consumers. Its budget for this in the coming year is $2.5 million, around 55 cents per household, ramping up to $11 million by 2006/07. Power savings through energy efficiency improvements can be made for around half the cost of generation from new power stations.

The Bill also extends the EC's powers to secure reserve generating capacity in the future. The cost of the reserve energy plant at Whirinaki for the 2004/05 financial year will be around 0.07 cents per unit, around $5.50 per household. This includes capital costs and maintenance. The EC has already concluded that it will not be necessary to take additional reserve measures for winter 2005 over and above that provided by Whirinaki.

The budget was developed in consultation with the EC to ensure that it is adequately funded to get the job done properly.

(Calculations are based on per household annual consumption of 8000KWh, and estimated total consumption of 36,300 GWh.)

In addition to its new energy efficiency remit, the EC is responsible for many issues not previously handled under industry self governance. Its scope now includes:

Consumer protection and enhanced retail competition Managing security of supply issues – shortage avoidance through the provision of reserve capacity and short term demand management to overcome capacity constraints Transmission governance – work to develop a framework around Transpower's planned $1.5 billion upgrade to ensure that it is appropriate, robust and timely Demand and supply modelling – to promote better market operation and capacity planning functions Hedge market development - the promotion of transparent and liquid hedge markets, particularly for those with limited physical cover, and Oversight of system quality rules.

Budget 2004/05

The Commission took responsibility for managing wholesale and retail electricity markets from the industry on 1 March this year. The budget for the provision of electricity market service provider contracts for this year is $42.2 million. The operating budget for the EC is $12.9 million. This is expected to reduce to $10.3 million by 2006/07 as urgent work left undone under industry self governance is completed. Overall, this represents a cost to the average household of $12.14 per annum. This compares the average household impost under last years industry self governance arrangements of $9.45.

The budget for the annuitisation of fixed capital and maintenance costs for Whirinaki of $25 million, $5.50 per household, is based on a 6% cost of capital, yet to be finalised.

A provision of $2.5 million, 55 cents per household, has been made for energy efficiency.

This gives a total of $57.6 million for general governance, plus $25 million for Whirinaki.

ENDS

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