2. Assumptions and proposed assessment criteria
Urban and rural cross-subsidy
Current government policy is to peg changes in line charges to rural areas to changes in line charges to urban areas.
National Institute of Water and Atmospheric Research (NIWA)
The choice between lines and alternative supply appears unrelated to the cross-subsiding issue. Intent of subsidy should be the focus.
Sustainable Energy Association NZ
Problem with levelising the lines charges between urban and rural customers is the inhibiting effect it has on the uptake of distributed and standalone generation.
New Zealand Police
Intention of government policy appears to have been to keep rural customers supplied at an affordable cost.
Ontrack
Intention of government policy appears to have been to keep rural customers supplied at an affordable cost.
TelstraClear
Intention of government policy appears to have been to keep rural customers supplied at an affordable cost.
JDA & Associates
Intention of government policy appears to have been to keep rural customers supplied at an affordable cost.
Vodafone
Intention of government policy appears to have been to keep rural customers supplied at an affordable cost.
Genesis Energy
The range of plausible solutions is constrained by this requirement; and that lines companies are the vehicle through which the subsidy is delivered. Hence dynamic efficiency losses are not to be addressed – i.e. incorrect investment decisions will be made due to lack of signal of full cost of supply.
Thames Coromandel DC
Supports continuation of this government policy.
Rural Women of NZ
Supports this policy. Electricity supply at reasonable cost is vital to the rural sector.
Federated Farmers
This policy should continue. Given the importance of primary products to domestic and export markets, affordable electricity is a key issue for the economy.
French Pass Sea Safaris
The rural sector supports the whole of NZ and should not be penalised with rate increases.
French Pass Residents Inc
Generation is often located in the rural environment. Though not officially recognised, impacts of this are compensated by socialising the cost across all electricity users.
Scanpower
Scanpower maintains equality of pricing across network. Acknowledges that prima facie cross subsidy is inherent in this pricing policy, but believes this is offset to some degree by economic benefits provided by rural sector in the network area, and higher quality received by urban consumers. Removing cross subsidy unlikely due to complexity of establishing/administering asset base pricing, and magnitude of increases in rural line charges would be socially and politically unacceptable.
Eastland Network
Using supply alternatives has ability to reduce extent of cross-subsidy; benefits could be passed on to consumers. It is likely that regulatory alignment will require cross-subsidisation between urban and rural consumers to be explicitly provided for.
Marlborough Lines
Para 99 of GPS should be reviewed and implications considered in the context of the current review of section 62. Even if costs of alternatives are lower than true costs of lines supply, if line prices are held at artificially low levels at a consequence of GPS requirements, there is little incentive for consumers to consider alternatives.
Network Tasman
Introduction of GPS policy and low use tariff option for residential consumers has forced NTL to abandon price loadings in rural areas with uneconomic segments of the network. To meet new policy requirements NTL no longer carries regional differentiation in line pricing. Rural segments have become more uneconomic and level of cross subsidy has increased. By sheltering users from true cost of supply, incentives for uptake of new technologies and alternative power systems have been muted.
Economic efficiency considerations (allocative, productive, and dynamic) argue reductions of cross-subsidy through cost reflective pricing will produce best economic outcome, efficient allocation of resources.
The Lines Company
Info shows six lines companies with significantly higher proportion of RERC funded lines. Price analysis will probably show these six have relatively higher prices, even without factoring in replacement of uneconomic lines.
The Lines Company
Not equitable for consumers of local lines company to pay for supply to remote areas. Lines company boundaries often arbitrary and bear little relationship to any community of interest. Cost of subsidy should not fall on citizens of low-decile rural towns, who can least afford to bear cost. We submit the nation should bear the cost. This would be in line with telecommunications and other subsidies.
Do not believe there needs to be a special levy, cost is relatively small, could be funded from general tax funds.
Orion
While a degree of cross-subsidy inevitably exists, continuation of the GPS policy will encourage lines companies to discontinue supply to non-economic consumers or not connect them in the first place. It makes alternatives less attractive as the alternative is unlikely to be cost-effective compared to subsidised supply from a network.
Counties Power
Recommends MED consider the need to allow a reasonable degree of flexibility in pricing policies adopted by lines companies.
Collective submission - 18 lines companies
Combination of average pricing and differential quality of supply therefore results in an inherent price quality trade-off for remote rural consumers. Extent of cross-subsidy differs across networks depending on how tariff groups are defined, and relative proportions of urban, rural, remote network and connections. Many ELBs indicate that the impact of cross-subsidy on urban and rural consumers is insignificant due to small proportion of consumers supplied by remote rural assets.
Collective submission - 18 lines companies
Existing GPS requirement potentially unsustainable – based on historical position. There is no evidence to suggest this is efficient or fair or will be in the future. This policy requirement is a barrier to meeting objectives of 2013 review.
Waitaki Power Trust
Historically subsidy to construct lines justified in terms of enabling farmers to increase GDP – regarded as promoting national good. Rural area towns benefit when rural area is doing well, so while there is some cross-subsidy, this is paid back in other ways.
Extent of cross-subsidy is uncertain, noted that less than 1% of lines companies made economic value adjustments (to their asset values), suggesting that currently the number of consumers served by uneconomic lines could actually be quite small.
Suggests cross-subsidy is only an issue for lines companies that are publicly listed, seek a commercial return. Consumer Trust owned lines companies will continue to use normal price averaging across the network.
Electricity Networks Association
If s62 continues, costs borne by urban customers will increase. As assets deteriorate, they will need to be replaced, potentially at considerable cost. Necessary repair and maintenance work will be difficult and expensive because of inconsistencies and ambiguities in current legislation. Issue of whether this re-distribution of costs should occur needs to be considered.
Electricity Networks Association
Another issue that needs consideration is the ability of favoured larger customers to avoid the cross-subsidy by connecting directly to Transpower's grid at one or more of its GXPs. As the costs of maintaining ageing remote lines rises, pressures to do this could well increase, leaving relatively fewer urban consumers to carry the rising costs of the cross-subsidy.
Electricity Networks Association
Burden of uneconomic lines falls unevenly on lines companies in different areas, as not all lines companies have the same proportion of uneconomic lines to asset base.
Electricity Networks Association
Would seek a statutory guarantee that any necessary cross-subsidies from urban to rural consumers will not be disallowed by (or invoke sanctions from) the CC under part 4A or by any regulatory authority.
Vector
Subsidy is consistent with other government social policy objectives. Up to government to determine what appropriate subsidy is, when full cost recovery may cause some consumers hardship. Although costs of supplying uneconomic consumers seem low, has potential to be a more significant issue in future as ageing networks become due for replacement and costs of alternatives reduce.
Issue should not be resolved by assumption. Should be an attempt to assess and make transparent the value of the subsidy to ensure overall costs not unacceptable.
Subsidy framework should be developed with 3 key criteria
- Ensure competitive neutrality between incumbent network owners and competitors
- Should promote efficient competition in supply of alternatives to line services
- The extent any option impacts on costs of lines businesses should be reflected in part 4A regime. Lines businesses must be able to recover costs of alternatives.
Network Waitaki
In general line companies make their living by providing line assets for which they are permitted to fully recover costs and charge a reasonable rate of return. Their charges are averaged across a large asset base and a large consumer base. In this regard there are no uneconomic assets and there is no requirement on line companies for their pricing to reflect economic efficiency principles.
In these circumstances why would a line company want to reduce quantity of assets and number of consumers it services? Networks were reticulated in an era when there were subsidies, lower consenting and easement costs, etc. This established position is not given away lightly. Any lines that still cannot currently be justified on a marginal cost basis should never have been built and it doesn't make economic sense to protect these supplies.
Network Waitaki
If the MED or the Government has issues over subsidy and fairness of pricing policy then it should prescribe the principles on which pricing methodologies are to be based.
NWL completely average prices between rural and urban consumers. It also makes no distinction between domestic and non-domestic consumption. There is no commercial imperative on NWL to introduce differentials and its consumer trust owners would oppose such a change.
This is not a fight line companies need to have in the pursuit of some one else's political ideology. Without the RERC very few new uneconomic supplies are being built while the older connection base is subject to natural age related attrition. Extremely uneconomic supplies will slowly disconnect as owners of service lines requiring upgrade will make their own economic choice.
The most distorting issue affecting line company pricing is the cap on fixed charges for low consumption supplies.
Line company pricing methodology is still based on electricity volume sales which bear no relationship to the cost of supply or the service levels provided. Until this pricing methodology is addressed cross- subsidy, economic efficiency, social equity and commercial fairness issues will remain.
When considering the issue of cross-subsidy, pricing equity must be considered against service equity. Remote connections are unlikely to have the same reliability and security services as a CBD for example. Who is subsidising who is matter of opinion. The material gains from being economically pure don't out-weigh the effort in working it out. Whatever pricing signals are created by a line company they are just as quickly destroyed by the retailer's tariffs.
Meridian
With GPS requirement, rural consumers may not be receiving economically efficient signals about the true cost of line supply versus other supply alternatives. Queries whether there are things to be learnt from lines companies' approaches to rural connections since 1993 that can be applied to the connections before 1993 that could be shared with the wider group.
Tararua District Council
Assumption of peg is highly significant and may have more of an impact on future choices than the options outlined in the discussion document.
Local Government NZ
Assumption of peg is highly significant and may have more of an impact on future choices than the options outlined in the discussion document. Seek clarification and confirmation from Government on this.
Mighty River Power
The maintenance of the rural-urban price alignment would act to exacerbate the number of commercially non-viable consumers the lines businesses would have incentives to disconnect. If supply obligation was removed, a rural consumer would probably prefer to pay higher prices than face non-supply. It would not make sense to remove the obligation without reviewing the rural-urban price alignment. However, the ability of lines companies to meet the subsidy is sustainable (as the higher prices paid by urban consumers cannot be undercut).
The economics of line supply
Supplying electricity by lines could be considered uneconomic for two main reasons: i. When the revenue generated from the consumers connected to the line is insufficient to meet the costs of maintaining the line, including asset renewal. ii. When it would be a lower cost to supply the same area by an alternative means (i.e. not by long distribution lines).
New Zealand Police
Need to adopt one clear definition for uneconomic; once established should cover no more than the customers who would be picked up by the ODV methodology.
Ontrack
Need to adopt one clear definition for uneconomic; once established should cover no more than the customers who would be picked up by the ODV methodology.
TelstraClear
Need to adopt one clear definition for uneconomic; once established should cover no more than the customers who would be picked up by the ODV methodology.
JDA & Associates
Need to adopt one clear definition for uneconomic; once established should cover no more than the customers who would be picked up by the ODV methodology.
Vodafone
Need to adopt one clear definition for uneconomic; once established should cover no more than the customers who would be picked up by the ODV methodology.
South Island High Country Federated Farmers
Acknowledge the high cost of construction and maintenance of lines.
Marlborough Lines
Lines may still be uneconomic where identified cost of alternatives is greater than the cost of supply by way of lines. Value of uneconomic lines in Marlborough lines network is significantly in excess of 1% of total.
Network Tasman
Provides sample analysis of uneconomic network segments. Indicates that revenues are insufficient to even meet operating and maintenance costs, and line charges would have to increase 3-4 times to meet costs, and 5-6 times to cover costs, depreciation plus WACC on the ODRC (35 - 45c/kWh). This suggests alternative systems are reasonably competitive provided lines are fully costed and cost reflective pricing.
Given current network assets are sunk costs it is rational to keep them in use for remaining economic life provided income covers cash operating costs. Inappropriate to build new lines or reinforce existing lines in these areas, but continued use of existing sunk assets probably cheaper than alternatives provided capital cost considerations set aside.
Network Tasman
Where spare capacity available on uneconomic lines, NTL will connect new loads, however, a substantial connection fee will continue to be charged, which: reflects the inadequacy of line charge revenues derived in these areas; encourages new loads to minimise their maximum demand requirements; and encourages new loads to consider alternative energy supply solutions. NTL does not want to be put in a position of reinforcing/upgrading lines and needs to retain the right to refuse new connections to these network segments once capacity limits reached. Once at capacity, lines will be as near to economic as likely to get but will not justify new upgrade capital.
Top Energy Consumer Trust
Top Energy continues to construct supply lines and connect new consumers, where the cost means it is uneconomic. The company operates a capital contribution scheme where the new consumer funds the uneconomic proportion of equipment, which is refundable when others connect. There is no undertaking to maintain supply for any period or at any time. It must be presumed that when equipment requires replacing in future, there may be a requirement for the consumer to again fund part of that cost.
Electricity Networks Association
Review has not properly identified costs for lines companies in extending section 62. These costs include:
- Cost of maintaining uneconomic supply. Review notes no lines companies have reduced value of line under EV test in latest disclosure. However, lines companies have made EV adjustments in the past. Future costs of maintaining lines installed with cross-subsidies will fall on lines companies.
- Costs in securing land access to maintain lines
- Costs in resolving disputes over ownership of existing works.
Network Waitaki
No such thing as uneconomic lines. We fully recover the cost of providing services or would go out of business. We are a cost plus rate of return business. The larger our asset, whether economically efficient or not, the larger our business.
Issue is economic efficiency and monopolies given weak incentives to address this issue. Price controls, low fixed charges, etc. are all threats to supply in uneconomic areas. The obligation to supply cannot address this issue; a change in pricing methodology and price control practice is required.
The economic argument needs to consider what a consumer has to pay to establish the connection (which supposedly covers at least some of the asset investment cost) and the line charges that are only intended to cover the cost of sustaining that connection. Upgrades in service levels and/or increased usage can be addressed by user specific levies and capital contributions. If the cost replacement at the end of economic service life is addressed in a similar fashion then there is no economic issue for the line company.
Capital investment aside, the differences in cost of providing line function services between consumers is minor over all. Line company cost efficiency is measured by direct cost per km which does not vary significantly between rural and urban consumers and indirect cost per connection which is also not that user/location specific.
Tararua District Council
As electricity is a national network, contributions to it should come from both local and central levels
Marlborough District Council
Need to define what uneconomic is in order to know how many users will be affected and what level of costs and subsidies are involved. Once a firm decision is established, in our opinion it should cover no more than the customers who would be picked up by ODV methodology.
Southland DC
The use of the term "uneconomic" may be code for "profitable, but far less so than other areas of the network where we make a fortune". A large part of the problem (and the solution) is the attitude of the network owner towards its customers and social responsibilities.
Local Government NZ
Costs of line supply / subsidy: national cost is rural production uneconomic because of increased power costs, cost and efficiency of generation, both central and local, safety management of communications, emergency services and lighting of public areas; equity in relation to pricing.
Lines companies' asset valuations
A lines company values its network assets using a valuation methodology called Optimised Deprival Valuation (ODV). One part of the method requires that a lines company consider its network as comprising many segments and evaluate whether, for each segment, it is possible to provide the same service, at lower cost to users of the network, by an alternative means. If so, then that portion of the network is deemed uneconomic. This is called the Economic Valuation (EV) test and its result is to reduce the asset value of the network. A company does not have to undertake an EV test if it is thought that the reduction in value would be less than 1% of the total network value.
Scanpower
Concerned at potential for inconsistencies in regulatory approach between various bodies in the industry. If obligation to supply continues concerned regarding imposed price regulation that may threaten company's ability to meet obligation to supply on a consistent basis.
Eastland Networks
Note that must be possible for lines companies to make an adequate return on investment that is not based on ODV but real expenditure.
Unison
Review of part 4A of Commerce Act need to take account of both current obligation and any intended extension of obligation.
Marlborough Lines
Review must consider other elements of regulatory framework including Part 4A of Commerce Act. Imperative that MED co-ordinate the approach to review of S62 with review of Part 4A and Commerce Commission consideration of threshold regime to apply from the end of current reset period.
Orion
Has advocated ODRC approach to asset valuation rather than ODV as ODRC appropriately reflects the principle of the "averagely efficient hypothetical new entrant". The use of an EV adjustment is also inconsistent with an obligation to maintain supply. Recommend no EV adjustments done on uneconomic assets that fall within s62 criteria.
Collective submission - 18 lines companies
Needs to be consistency in legislation which recognises obligations to supply on ELBs and allows them to include the required assets in their regulatory asset base.
Electricity Networks Association
ENA has issues over whether thresholds under part 4A, any investigations by the Commerce Commission into a breach of those thresholds, and any declaration of control take into account the costs to lines companies of meeting the obligation to supply. Lines companies are concerned that the CC will continue to apply a strict approach that does not recognise the costs of this obligation and of the 2006 GPS obligation under which the Government expects rural users to be cross-subsidised from different categories of customers.
Electricity Networks Association
ODV/EV valuation methodology unfair especially while S62 remains because in most cases, identified costs of alternatives will always be greater than cost of supply by way of uneconomic lines. True cost of uneconomic lines may be significantly in excess of 1% of total value yet that portion of the network does not qualify for an EV adjustment.
ENA believes a fair formula for evaluating economic lines could be to value then at the deprival value to the consumers they serve. This could be calculated around a simple range of options of alternatives depending on the load of the lines – for example, diesel sets, micro-hydro, wind. This would more accurately reflect the asset value reduction of supplying uneconomic lines and would encourage lines companies and consumers to consider alternative supplies of energy.
Network Waitaki
Line companies do not value their assets by ODV methodology. They are required by the regulator to prepare this valuation for regulatory purposes only. It has no other practical application. Their business economics and pricing is not based on ODV.
The EV valuation is not based on actual revenues derived from actual investment. The methodology considers what could be charged on the basis of the next least cost supply solution. An accurate assessment of the economics of supply in terms of whether the revenue derived from the users of the investment made in supply is more likely to be in the order of 5-15% uneconomic network depending on the network's load demographics. This is far greater than the 1% suggested by EV write-downs of ODRC.
This is the level of cross-subsidy that exists now and there is no reason to believe that this will suddenly become unacceptable in 2013. The low user tariff requirement is having a bigger impact.
What is alternative supply?
Alternative supply (alternatives) can mean two things: i. Any method to generate and supply electricity to an area that is not connected to a line company's network. ii. Any method by which electricity use can be reduced to better enable alternative supply.
Rural Women of NZ
Supports the development of alternative supply provided the development and maintenance is certain and cost effective for individual consumers.
Fonterra
Options for alternative supply must be evaluated on reliability, security of supply, cost and efficiency. DG not sufficiently proven.
Federated Farmers
Self generation or community level distributed generation solutions are required to ensure security of supply in rural areas if uneconomic lines are not maintained. One option is for consumers to defer load to off peak times (thereby avoiding investment in lines), although the ability for rural energy users to do this can be limited.
Unison
Before a decision on alternative supply taken, further research of new technologies should be undertaken. Investors in energy services need to be encouraged to further innovate and adopt new technologies, which stems from the ability to make commercial returns. By addressing problems of alternative supply solutions, reliance on extension of s62 could be mitigated.
Top Energy
Over past 15 years has investigated alternatives, in every case this has been unsuccessful. Paper seems to assume that alternative energy systems are viable. In almost all cases, systems are very capital intensive. Many consumers in Far North would be incapable of accessing funds required for alternative supply, and if disconnected may have to live without proper heating, lighting and provision of water and sanitation.
Collective submission - 18 lines companies
Understand that alternative supply options incur a higher total cost of supply than equivalent costs for customers already connected to a network. In addition, alternatives tend to provide lower quality of service (availability and reliability). More common for consumers to pay for high cost connections than investigate alternatives, though this may change over time. ELBs should be permitted to consider and possibly promote alternative options but there should be no explicit requirement in legislation/policy for them to do so.
Top Energy Consumer Trust
Far North is a district where a significant proportion of population would be totally incapable of accessing funds required to source alternative energy supplies. Only realistic result that can be anticipated is that many of these people will be disconnected from the power supply and then will have to live without proper heating, lighting and sanitation. House fires in the Far North from use of candles illustrate graphically the likely outcome of allowing S62 to continue to its scheduled termination.
Powernet
Does not wish to see lines businesses constrained to providing a reticulated supply to existing customers but to also include providing assistance to customers with a transition to an alternative supply option if that was the optimum solution in providing a continuing supply to the customer.
Electricity Networks Association
Continuance of section 62 (especially coupled with EIRA) could stifle lines companies' and consumers' incentives to further innovate and adopt new technologies as an alternative to electricity supply by lines. A Parliamentary Commissioner for the Environment study and report demonstrate there is significantly more research and consideration needed of new technologies for alternative supply options for supplying rural consumers currently serviced by "uneconomic" lines, before a decision on section 62 is made. Risk that a decision on s62 is made without knowing implications of that decision for incentives for investment in new technologies.
Vector
Alternatives becoming more economic. As this happens, proportion of lines that are uneconomic may increase and value of a technology-neutral policy would increase. Supports government commitment to encourage uptake of renewable energy generation and DG.
Consumers interested in services provided not in mode of delivery. As long as there is comparability in quality, consumers should be indifferent to lines or alternatives. Policies should be ambivalent to technology choice. Consistent with government policy to permit alternative solutions.
Network Waitaki
The alternative supplies considered include the entire supply system not just LFS. It should not be assumed that local line companies have the expertise to advise on alternative systems or the ability to manage them.
While the supply obligation remains and consumers can benefit from cross-subsidy it is unlikely their investment decisions regarding their supply and the appliances they use will change.
Rather than stand alone alternative power supplies it is more likely that power systems will develop with mass market distributed micro generation such as Photovoltaic and Combined Heat and Power systems at household scale. This will use networks to interconnect and will have a major impact on investment and economics of supply. There will be less need for
capacity, security, and bulk transmission functions. Line asset can be reduced and economic efficiency improved. For these outcomes to occur the method used to charge line function services will need to change away from an energy volume sale basis.
Network Waitaki
Indicative unit costs do not identify the line charge component and are not related to line function service cost structures. Alternatives assume reduced service levels. To make a fair comparison some normalisation is required. This would show that services being provided are well beyond the minimum essential services and that charges are not sufficiently high enough to recover costs i.e. service is under valued and alternatives are unlikely to compete effectively.
Policy objectives like sustainability are not factored into the cost equation.
Contact Energy
Considers should select and option that does not discourage future investment in alternative energy sources, especially renewable micro-generation. Promoting renewable alternatives will likely be in line with the NZES.
Lines companies and energy retailers can work with customers to facilitate these alternative sources.
Tararua District Council
Imperative that there are incentives to develop and use appropriate alternative forms of generation (rather than just being left to the "Market"), critical that lines companies are allowed to own, maintain and sell generation in areas outside their own network.
Proposed Assessment Criteria
The objective of the review is to consider what new arrangements should be put in place to ensure that affected consumers continue to have proper access to an electricity supply that is efficient, fair and reliable and delivered in an environmentally sustainable manner.
Major Electricity Users Group
Equity consideration: customers that have been supplied from an uneconomic line since 1945 will by 2013 have had 68 years of line service whereas those since 1993 will have had 20 years of supply. Equity consideration stronger for the more recent customer.
New Zealand Police
Efficiency: while it may inefficient to subsidize, other inefficiencies are created if lines are removed (i.e. section 62 stands). Fairness: access to electricity at affordable prices cannot be met with existing technology. Reliable: Technology has not advanced to the stage that other options will provide the same level of security at similar prices. Environmentally sustainable: in general diesel generation will be the replacement with its attendant greenhouse gas emissions. Tankers would be needed to bring in the fuel.
Ontrack
Efficiency: while it may inefficient to subsidize, other inefficiencies are created if lines are removed (i.e. section 62 stands). Fairness: access to electricity at affordable prices cannot be met with existing technology. Reliable: Technology has not advanced to the stage that other options will provide the same level of security at similar prices. Environmentally sustainable: in general diesel generation will be the replacement with its attendant greenhouse gas emissions. Tankers would be needed to bring in the fuel.
TelstraClear
Efficiency: while it may inefficient to subsidize, other inefficiencies are created if lines are removed (i.e. section 62 stands). Fairness: access to electricity at affordable prices cannot be met with existing technology. Reliable: Technology has not advanced to the stage that other options will provide the same level of security at similar prices. Environmentally sustainable: in general diesel generation will be the replacement with its attendant greenhouse gas emissions. Tankers would be needed to bring in the fuel.
JDA & Associates
Efficiency: while it may inefficient to subsidize, other inefficiencies are created if lines are removed (i.e. section 62 stands). Fairness: access to electricity at affordable prices cannot be met with existing technology. Reliable: Technology has not advanced to the stage that other options will provide the same level of security at similar prices. Environmentally sustainable: in general diesel generation will be the replacement with its attendant greenhouse gas emissions. Tankers would be needed to bring in the fuel.
Vodafone
Efficiency: while it may inefficient to subsidize, other inefficiencies are created if lines are removed (i.e. section 62 stands). Fairness: access to electricity at affordable prices cannot be met with existing technology. Reliable: Technology has not advanced to the stage that other options will provide the same level of security at similar prices. Environmentally sustainable: in general diesel generation will be the replacement with its attendant greenhouse gas emissions. Tankers would be needed to bring in the fuel.
Marlborough Lines
More appropriate fairness criteria would be to remove comparison with other users and adopt a reasonableness test which takes into account e.g. location, consumer density and the cost of alternatives.
Orion
"Efficiency" criteria should explicitly include allocative, productive, and dynamic efficiency.
"Fair" criteria should be removed. Use of the word "fair" is highly subjective and can be interpreted in many different ways; there is no agreed definition of the term. If it is to be retained, should be clarified – Fair (e.g. assess whether remote, rural users will continue to have access to electricity at reasonable prices, comparable with prices for alternative forms of supply).
Should include "certainty" as the paper's purpose is to identify options that could address the problem of uncertainty of supply beyond 2013.
Counties Power
Object to narrow definitions of "fair" that apply only to consumers.
Collective submission - 18 lines companies
Need to consider impacts on the following consumer groups:
- Farmers/farm and forestry workers located in remote regions and/or areas with difficult terrain
- Small remote communities characterised by low income household with basic amenities
- Holiday home owners, tourist facilities located in remote regions.
Capacity of each group to contribute toward cost of continued electricity supply likely to vary considerably. For this reason we support an approach which provides for a range of solutions.
Waitaki Power Trust
Concept of "fairness" needs to be widened to include not only "reasonableness" of line charging to remote rural users, but also to take account of the ownership status of the line company supplying line function services to the potentially affected consumers.
Vector
Should be amended to include:
- Whether is consistent with or promotes government's objectives for the energy sector, including removing barriers to DG
- Whether option is competitively neutral in both supply of subsidised and non-subsidised services
- Whether proposed subsidy approach is administratively cost effective given the size of the economic issue
- Whether option is consistent with operation of Part 4A regime.
Vector
Assessment framework would be improved by breaking policy issue into constituent parts and assessing elements separately.
- Technology choice (assuming obligation or explicit supply subsidy)
- Subsidised supply
Powerco
Following definitions would assist the application of the criteria to consideration of whether a proposed regulatory regime would deliver the desired outcomes:
- Efficient – promote competition in markets for the long-term benefit of consumers in a way that minimises distortions (i.e. cross-subsidy)
- Fair – energy services are affordable for all classes of consumers. The delivered price of energy services to consumers in rural areas is comparable to the delivered price of energy services in urban areas.
- Reliable – Consumer energy needs are adequately serviced. Users are able to access the energy services they require, when they require them. For the avoidance of doubt, reliability thus defined does not necessarily refer to the reliability of line function services at a point of connection.
- Environmentally sustainable – Net environmental effects are reduced. In particular carbon emissions decrease and there are energy efficiency gains (energy efficiency means a change to energy use that results in an increase in net benefits per unit of energy)
Powerco
Options are not mutually exclusive, in choosing between them respondents may not be identifying discrete differences in policy. Each of the options is made up of four elements:
- Nature of future obligation (1993 service, information on LFS intentions, assistance in transition)
- Means of meeting service obligation (LFS, LFS or alternatives)
- Length of obligation (no expiry date, a limited time beyond 2013)
- Nature of subsidy (internalise in lines business, all electricity users.)
A useful approach may be to apply the assessment criteria to these elements individually.
Network Waitaki
There is no definition of Government's objects and a consistent policy framework to drive the tools like pricing methodology that will deliver on the objectives. Without this the assessment criteria are meaningless. We appear to be reverse engineering policy to fit the assessment criteria not using the assessment criteria to show that policy is delivering on objectives.
Environment Waikato
Ensure these criteria are assessed in their widest scope and offers the "four well beings" of the LGA 2002: social, economic, environmental, and cultural. Social equity considerations need to be balanced alongside purely economic equity considerations. Macroeconomic view of retaining productive capacity and community sustainability of remote users.
Marlborough District Council
If s62 takes effect (i.e. obligation is removed) then: inefficiencies created for other parts of rural sector e.g. maintenance of civil defence; not fair; no longer have reliable technology to create electricity; not environmentally sustainable to truck diesel to remote locations.
Hurunui DC
Support the assessment of options under criteria; expand environmental sustainability to cover potential effects on climate change and whether the supply is generated from renewable energy sources.
Local Government NZ
Supports criteria, but found it difficult to apply these in any meaningful way.
Environment Bay of Plenty
Efficient operation of the network should not be seen as a priority over social concerns and issues. Include "practical" so the options are tested for how realistic uptake will be.
Genesis Energy
"Fairness" relates to relative price levels between classes of consumer; fairness does not equate to the concept of affordability. Affordability is an important public policy outcome; aim of good public policy is to focus on delivery of the lowest cost option as encapsulated in the concept of efficiency first, with affordability next.
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