Electricity retailers seek 'ring-fencing' of competition from monopoly networks

Tuesday 18th July 2017

Electricity retailers are urging regulators to 'ring-fence' solar, battery and other emerging technology businesses being pursued by monopoly electricity network owners to allow competition in new electricity services to flourish.

But Auckland network owner Vector is pushing back just as strongly, saying the Electricity Authority's inquiry into "mass participation in electricity markets" has failed to make a case against network operators competing without constraint in the area.

Also at issue among the submissions is the treatment of customers' private electricity consumption data, which will be key to offering new services that allow customers to take far greater control of their energy consumption as traditional models for electricity generation and delivery start breaking down.

Roof-top solar power, battery technology and the so-called 'internet of things' are at the core of the emerging changes in the electricity industry and the EA is seeking early engagement on ensuring the sector develops in the most competitive possible way for electricity consumers.

Many electricity retailers and some network companies are already experimenting with new products and services, with Auckland-based network owner Vector seen by major retailers as trying to get ahead of regulatory threats by building new business lines in unregulated areas, subsidised by the guaranteed, regulated income it can earn from its traditional network assets.

In its submission, Genesis Energy says it "believes competition simply cannot thrive when there is a group of participants that have the potential to take advantage of a monopoly position to create an artificial 'leg-up'."

"Currently, monopoly network owners can distort developing emerging competitive markets by using their regulated asset base, or access to data, as leverage to make sub-commercial forays into emerging technologies markets; offering them below cost. This opportunistic behaviour occurs because they have guaranteed cost recovery."

Vector and its sector lobby group, the Electricity Networks Association, describe the EA's concentration on the potential for networks to screw the competitive scrum as both "unnecessary" and "unhelpful", while the Major Electricity Users Group urges the EA to wait and see whether a problem develops.

Vector's submission says it is "surprised" at the direction taken by the EA's consultation paper on the issue.

"It appears to be focused on networks despite identifying no evidence of any problems with network regulation" and has strayed into areas governed by the Commerce Commission, Vector suggests, while ignoring issues such as access to customer data for product development, "stalling smart meter installation, mistrust of New Zealand's wholesale electricity market, limited transparency with integrated generator/retailer businesses, limited customer benefits from retail competition and disengaged customers".

For its part, Genesis suggests network monopolies face too few disciplines to prevent the introduction of products subsidised by consumers of its monopoly services.

"We observe there is currently insufficient transparency around related party transactions of monopoly businesses, which could mean that services are procured from related parties by default even though the competitive market could potentially offer a more efficient solution," says the submission from Genesis's executive general manager for corporate affairs, Dean Schmidt.

In its submission on behalf of several monopoly networks, advisory firm PwC says: "Excluding distributors from participating in these opportunities not only risks lower uptake through lack of confidence or familiarity with new technology but may impact on network performance."

Contact Energy's submission urges that networks should operate as "a platform for services - acting as neutral facilitators", which would require regulatory ring-fencing.

"Emerging technology is a fundamentally competitive activity," the Contact submission says. "Networks have the ability to fund emerging technology through their regulatory asset base", risking customer disadvantage through reduced competition."

Mercury Energy notes that "many other jurisdictions such as Australia and the UK have taken very proactive regulatory steps to introduce ring-fencing for monopoly service providers".

"We would be highly supportive of the Authority promoting this approach for New Zealand."

(BusinessDesk)

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