Recommendations
85. I recommend that the Committee:
- note that officials consider that no fatal design flaws in the wholesale electricity market were revealed during winter 2001 but that the market overall would have worked better had the reforms specified in the Government Policy Statement of December 2000 been implemented;
- note that officials consider that as a consequence of the experiences of 2001 there will be better risk management in future by market participants;
- note that the New Zealand Electricity Market has introduced a free web-site with information about wholesale electricity prices, electricity demand and hydrology for hydro storage;
- note that to the extent New Zealand faces the need to build new generation capacity, wholesale market prices on average will trend towards long run marginal cost;
- note that the retail market is now dominated by five retailers, four of which have significant generation assets, and that weakened retail competition is an inevitable result;
- note that easing transmission constraints will help improve retail competition, and that the Government Policy Statement puts in place a mechanism for ensuring investments in the grid take place;
- note that the Minister of Energy intends to establish milestones for market improvements specified in the Government Policy Statement to be implemented before next winter, including:
- projections of system adequacy;
- disclosure of forward hedge prices;
- disclosure of generator offer prices into the market ;
- development of real time spot market pricing and promotion of demand-side participation;
- arrangements for setting agreed transmission prices;
- arrangements for agreeing on and paying for new transmission investments to relieve constraints; and
- development of financial instruments to manage transmission risk.
- Either
(Ministry of Economic Development) - agree that the Government Policy Statement should be amended to require public disclosure of generator offers after 2 weeks (instead of 3 months);
- agree that the Minister of Energy request the New Zealand Electricity Market implement this as soon as possible;
- invite the Minister of Commerce to issue a new section 26 statement of Government Policy under the Commerce Act, attaching the revised Government Policy Statement;
Or
(Treasury)
- direct officials to report to Cabinet Finance, Infrastructure and Environment Committee at its first meeting in 2002, with recommendations on whether disclosure of generator spot market offers, as contained in the GPS should either remain at three months in arrears, or move to a specified, shorter period, including an assessment of the compliance costs associated with any change;
- note that the Minister of Energy will advise incumbent generators/retailers that the Government expects effective retail competition and that if this does not eventuate the Government will consider further measures, including mandatory tendering of hedges and separation of retail and generation businesses; and
- note that the Minister of Energy is further investigating requiring all generators to tender hedges for a percentage of their dry-year capacity on an on-going basis.
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