Expert Advisory Panel for Electricity Price Review releases Options Paper

Wednesday 20 February 2019

Authors: Angela Harford and Chris Gordon

​​​​​​The independent Expert Advisory Panel for the Electricity Price Review this morning released a 39-page options paper setting out possible options to address issues identified in last year's first report.

Key themes of the options paper are a focus on the need for electricity prices to be fair and affordable, not just efficient or competitive, and an emphasis on strengthening the consumer voice in the electricity sector.

Where to from here?

The Panel has invited feedback on the options paper through a combination of meetings and workshops to be held in March (each covering the broad themes of consumer interests, the industry and regulation), along with written submissions which are due by 12pm on Friday 22 March 2019. The Panel is particularly interested in whether submitters favour an option (yes or no) and briefly why. The Panel expects to deliver its final recommendations to the Minister of Energy and Resources by mid-2019.

Headline points

In addition to the key themes identified by the Panel (as described above):

  • Some options favoured by the Panel could be voluntarily adopted by industry participants, while some will require significant legislative or regulatory change if adopted.

  • The Panel has focussed on targeted measures to improve outcomes for those in energy hardship, rather than favouring structural market changes to achieve this.

  • There is repeated emphasis on improving transparency and access to information in the electricity sector.

Snapshot of the options paper

The Panel identifies 41 options for consideration across seven key areas:

  • Strengthening the Consumer Voice

  • Reducing Energy Hardship

  • Increasing Retail Competition

  • Reinforcing Wholesale Market Competition

  • Improving Transmission and Distribution

  • Improving the Regulatory System

  • Preparing for a Low-Carbon Future

The Panel confirms that:

  • it favours 29 of the 41 options, four of which it identifies as matters of priority:

    • establishing a cross-sector energy hardship group;

    • defining energy hardship;

    • establishing a network of community support services to help consumers in energy hardship; and

    • amending the Code to guarantee distributors access to smart meter data on reasonable terms;

  • it does not favour seven options; and

  • it is undecided about the remaining five options.

Further information relating to the three broad themes of consumer interests, the industry and regulation is set out below.

Consumer interests

As expected, many of the Panel's favoured options have a consumer focus.

In addition to favouring a new proposed consumer advisory council, the Panel identifies eight favoured options to reduce energy hardship, with three identified as matters of priority (as described above).

The Panel also favours prohibiting prompt payment discounts, which it suggests could be quickly implemented by new regulations under the Electricity Industry Act 2010 or through new Code provisions. The options paper also recognises public housing tenants, with a recommendation that the Government consider exploring bulk electricity deals through agencies such as Housing New Zealand and ERANZ.

The Industry

Retail competition

The Panel identifies seven options to increase retail competition and reduce price gaps in the retail market.

It favours measures such as merging the two price comparison websites, Powerswitch and Whatsmynumber, and the Electricity Authority negotiating bulk deals for consumers who had not switched retailers for many years. However, it does not favour introducing retail price caps or changing the disclosure rules to require offers made by retailers when directly contacting a consumer to be disclosed.

The Panel also favours requiring distributors to offer common default terms to retailers, which would automatically apply unless agreed otherwise. This would be effected by an amendment to the Electricity Industry Act 2010 if required.

Wholesale competition

The Panel is not in favour of a forced separation of gen-tailers, so long as its specified favoured options are successful.

Its favoured options include vigorously enforcing the wholesale market information disclosure rules in the Code, identifying any gaps and, if required, extending the disclosure rules to include information on the availability of generation fuel.

In addition, the Panel favours:

  • imposing mandatory market-making obligations on vertically integrated companies to keep price spreads within a maximum 5% spread, consistent with the approach taken in Britain and parts of Australia;

  • introducing new information disclosure rules to require gen-tailers to report separately on their generation and retail businesses, including disclosure of transfer prices of energy sales within their group; and

  • the Electricity Authority comparing wholesale contract prices with new-generation costs to seek to identify excessive profits (and empowering the Electricity Authority to determine appropriate actions to address any identified causes and issues).

Transmission and Distribution

The Panel favours that the Government issue two government policy statements to the Electricity Authority:

  • a GPS setting out how the Electricity Authority should prepare fresh guidelines for setting transmission prices (with the GPS to be issued in a timely and efficient manner given the contentious and ongoing debate about transmission pricing); and

  • a GPS on distribution pricing.

Both of these would take into account the Government's policy objectives, including affordability and minimising price shocks as New Zealand moves to a low emissions economy (with the low emissions economy expected to be mandated through the proposed new Zero Carbon Act in late 2019).

In addition, the Panel favours:

  • a phase-out of the low fixed charge tariff regulations to improve outcomes for low income households (which it suggests could begin in 2020);

  • as a matter of priority, amending the Code to guarantee distributors' access to smart meter data on reasonable terms; and

  • strengthening the Commerce Commission's powers to regulate distributors' performance (including higher maximum penalties for breaching price-quality regulations, comparative benchmarking when setting price-quality regulations and requiring distributors to move to customised price-quality regulations if this would be better for consumers).

The Panel does not favour mandatory amalgamations of small distributors (considering this too heavy-handed) or mandatory lowering of the regulated asset values of Transpower and some distributors or the regulated rates of return on their investment.

Regulation

The Panel favours:

  • legislative amendments to give the Electricity Authority more flexible powers to regulate network access for distributed energy services, particularly in the face of unforeseen future developments;

  • amending the statutory objectives of the Electricity Authority to include a consumer protection function;

  • reviewing the compliance framework in the Electricity Industry Act 2010 and the enforcement regulations, and strengthening the Electricity Authority's information gathering powers; and

  • a preliminary exploration of the costs and benefits of establishing an electricity and gas regulator.  

The Panel favours three options to help prepare for a low-carbon future, with the aim of encouraging innovation and ensuring a stable and resilient supply of electricity:

  • a review by the Electricity Authority of the security, reliability and resilience of the electricity supply to determine if the electricity supply is in a position to meet the technological and other challenges that lie ahead;

  • encouraging more innovation among Government agencies and requiring more "joined up" thinking; and

  • improving the energy efficiency of new and existing buildings.

If you would like assistance in preparing a submission, or would like to discuss the options paper more generally, please contact Angela Harford, Chris Gordon or your usual Bell Gully advisor.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Angela Harford

    Partner Wellington
  • Chris Gordon

    Partner Wellington
  • Jenny Stevens

    Partner Wellington
  • Glenn Shewan

    Special Counsel Auckland
Related areas of expertise
  • Energy
  • Climate change