Electricity Commission: Questions And Answers

Why has the Government established the Electricity Commission?

The Electricity Commission has been established to take over responsibility for electricity industry governance from the existing industry arrangements. Those arrangements enable the electricity market to operate and guide transmission investment. Weaknesses in the existing industry arrangements are seen as contributing to the electricity supply shortages in 2001 and 2003.

The Commission must ensure that the governance arrangements meet the Government’s expectations. The draft Government Policy Statement on Electricity Governance that has been released for consultation today will provide guidance to the Commission on the Government’s expectations.

The draft Government Policy Statement also includes further detail on the Government’s intention to give the Electricity Commission responsibility for ensuring that electricity needs can be met even in dry years without power savings campaigns.

Who can be appointed as Electricity Commission board members?

The Minister of Energy appoints the chairperson and members of the board. A minimum of five and a maximum of nine members may be appointed. Under the Electricity Act, members who are interested in a transaction must declare that interest and refrain from further involvement in that transaction. In addition, in accordance with Cabinet guidelines, actual or potential conflicts of interest must be identified and steps put in place to manage those conflicts before a person can be appointed.

What process was followed for appointing the chairperson and board members?

Advertisements for board members and chairperson were placed in New Zealand daily newspapers, the National Business Review and the Australian Financial Review. Advertisements for board chairperson were placed in the Economist (U.K.). More than 200 applications were received by a recruitment-consulting firm, which conducted an initial review of candidates. The short-listed candidates were interviewed and recommendations were made to the Minister of Energy.

What are the terms of appointments?

Roy Hemmingway will be the inaugural chairperson of the Electricity Commission for 3 years. Board members' terms are: David Close, 2 years; Douglas Dell, 2 years; Peter Harris, 3 years; Graham Pinnell, 2 years; Christine Southey, 3 years. Board members may choose to resign at any time. The Minister of Energy may also remove a member at any time by written notice.

What fees will board members receive?

The chairperson, who will work full-time on Commission business, will receive an annualised fee of $300,000. This is comparable to the remuneration of the Commerce Commission chairperson and the Telecommunications Commissioner. Board members will receive $1,000 per day. It is anticipated that members will work an average of 2 days per week initially, although this is expected to reduce over time. These fees are comparable to those payable to members of other high-level Government regulatory bodies, such as the Commerce Commission and the Securities Commission What will be the Commission's budget and staffing level?

The Electricity Commission is expected to have up to 20 staff by the end of February 2004. Its full-year operating costs are estimated to be $6 million (GST incl). These costs will be met through a levy on the wholesale electricity market. In addition, as at present, the wholesale market will be levied some $40 million a year to pay service providers such as the market administrator and the system operator.

What happens to the existing industry self-governance arrangements?

The existing industry self-governance arrangements consist primarily of three multilateral contracts: the Metering and Reconciliation Information Agreement (MARIA), the NZ Electricity Market (NZEM) and the Multilateral Agreement on Common Quality Standards (MACQS). These will remain in place until transitional Electricity Governance Regulations and Electricity Governance Rules have been implemented.

The Ministry of Economic Development is currently conducting a second round of consultation on the Electricity Governance Regulations and Rules and a decision on the implementation date will be made when this has been completed. The transitional Electricity Governance Regulations and Rules will be based on the rulebook proposed by the now-defunct Electricity Governance Establishment Committee. Amendments are being made, however, to reflect the impact of moving from industry decision-making to an independent Electricity Commission.

What legislation is the Electricity Commission established under?

The Electricity Commission is an Electricity Governance Board established under Section 172M of the Electricity Act 1992. The possibility of establishing the Electricity Commission was included in the Electricity Act by the Electricity Amendment Act 2001. This made it possible to quickly establish the Electricity Commission when it became clear that the proposed industry arrangements would not receive the necessary support from the industry.

In May 2003, the Government announced its intention to amend the Electricity Act to give the Electricity Commission the responsibility for ensuring that electricity needs can be met even in dry years without power savings campaigns. It is intended that this legislation will be introduced into the House in the near future.

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