Business Compliance Cost Statement
Sources of Compliance Costs
21. There are additional compliance costs associated with the potential for the Commission to set minimum requirements on:
- generators with regard to dry year reserves and offering of long term contracts, and/or
- retailers and major electricity users to hold long term contracts and/or provide for demand reductions
22. The compliance costs would take the form of interactions with the Commission to determine the future availability of the generator's capacity in a dry year, and/or the future level of a retailer or major user's demand. This would involve an investment in expertise and advice to understand and influence the Commission's approach to ensuring security of supply and its application to individual businesses.
23. The Commission will be directed to require disclosure of information on current and future thermal fuel availability, which will impose compliance costs on thermal generators.
24. The industry (including electricity users) will be consulted by the Commission before imposing minimum requirements on generators, retailers and/or major users. The consultation process will result in time out of business.
Parties Affected
25. The compliance costs would affect all generators (apart from very small generators less than about 5MW capacity) and/or retailers and major electricity users (that is, users that purchase electricity directly from the wholesale market).
26. The generators affected include Contact Energy, Trustpower, the three State owned generators (Meridian Energy, Mighty River Power, and Genesis), and approximately 5 to 10 smaller generators. The same companies are also affected in their role as electricity retailers. Major electricity users include Comalco, wood processing businesses in the Bay of Plenty and Hawkes Bay, mining companies, steel manufacturers and other manufacturers who purchase electricity directly from the wholesale market.
Estimated Compliance Costs of the Proposal
27. Generators and retailers already conduct their own modelling of dry year scenarios. Although they would incur additional compliance costs from their interactions with the Commission, this would be likely to take the form of a small number of additional staff. Total compliance costs over all parties are estimated at between $1 million and $10 million per year depending largely on the extent to which obligations are imposed on electricity users. Compliance costs could be at the lower end of that range if the Commission prefers to contract for dry year reserves rather than impose minimum requirements on generators, retailers and/or major users.
Level of Confidence of Compliance Cost Estimates
28. Compliance costs will depend largely on the way in which the Commission implements its responsibility for security of supply and the opportunities available for strategic interaction between the Commission and affected parties. However, there is a reasonable degree of confidence that compliance costs would be less than $10 million per annum.
Longer Term Implications for Compliance Costs
29. Compliance costs are likely to reduce over time as affected parties develop expertise in dealing with the Commission and as experience develops in the application of the regime for security of supply.
Key Compliance Cost Issues Identified in Consultation
30. No compliance cost issues were identified in consultation.
Overlapping Compliance Requirements with Other Agencies
31. No overlapping compliance requirements with other agencies were identified.
Steps Taken to Ensure that Compliance Costs Are Minimised
32. The Commission will be required to consult before exercising powers likely to create compliance costs - in particular before imposing minimum requirements on generators, retailers and/or major users.
33. The Commission will be responsible for ensuring that affected parties are aware of their obligations.
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