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Govt toughens final terms of reference for electricity review

Tuesday 27th March 2018

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The final terms of reference for the government's inquiry into the electricity sector goes further than draft proposals to include examining whether power companies can make "excessive profits" and "whether the costs of providing electricity services are or should be socialised or spread evenly across different classes of consumers".

Energy Minster Megan Woods issued the final terms for the inquiry after months of consultation, the last round of which is understood to have involved input from the New Zealand First party, which sought the inquiry as part of its coalition agreement allowing the Labour Party to form a government last October. NZ First is a long-time sceptic of electricity market reforms that have seen power prices rise steadily for households but have also underpinned the country's 85 percent renewable electricity generation.

A new "scope" paragraph is one of numerous changes to the draft terms of reference and includes: "whether suppliers of electricity services have the ability to extract excessive profits over time"; "whether all consumers have access to affordable electricity services, noting this depends on many factors other than electricity prices"; and whether power costs should be socialised or smoothed out between, for example, households and businesses, or between urban, rural or regional communities.

Elsewhere, the impact of submissions from the industry itself are evident.

Where the draft terms of reference proposed only considering whether electricity pricing was "fair and equitable", the review will now add "efficient" to that consideration, reflecting submissions that efficiency was a primary requirement of the Electricity Authority, one of three government agencies with responsibility for regulating the sector, along with the Commerce Commission and the Ministry of Business, Innovation and Employment. A review of the three agencies' respective roles is also a new part of the review.

The final terms also require the review to take into account "crossovers and linkages with existing and planned work, including the work of the EA on transmission pricing, work on how to reach 100 percent renewable electricity by 2035 by the new Climate Change Committee and Climate Commission, and the work of the Productivity Commission on its low emissions economy inquiry". 

The membership of the review panel is close to being finalised, Woods said.

While stressing the review would be "forward-looking", she noted that "residential electricity prices have risen by around 50 percent since 2000 but the price for business remained flat".

"We want to find out why that is," said Woods.

The terms of reference also clarify that detailed findings on complex issues, such as the method for setting the regulated price charged by monopoly electricity line networks, was to be discouraged.

"Previous scrutiny, the technical complexity of the issues involved, impact on investment and regulatory certainty, and their cross-sectoral implications (for gas and airport services), means the government is likely to exercise considerable caution in considering changes" in that area.

However, electricity retailers' concern that monopoly network owners could cross-subsidise involvement in emerging technologies has been recognised.

A clause including scrutiny of regulation at "the boundaries between contestable and non-contestable services" has been inserted in the final terms of reference.

The review will occur in stages, with a final report to be completed by April 2019, 


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