4. Summary of options
Option A: Continuance of obligation to maintain line function services with no expiry date
Subsection 6 of section 62 is repealed so that line function services must be supplied in perpetuity.
Anthea Ward
Option supported
Theodora C. Ward
Option supported
MC and AE Ward
The simplest and easiest to adopt.
Richard Leckinger
Second best choice as the status quo access for remote communities is a relatively low cost affair.
National Institute of Water and Atmospheric Research (NIWA)
Rank 3 of six options; robust, efficient and environmentally-friendly system for urban; rank 2/6 for rural, economically poor.
David MacClement
Not supported
New Zealand Police
Not supported – counterproductive for everyone else if suitable (i.e. effective and affordable) alternatives were to become available.
Ontrack
Not supported – counterproductive for everyone else if suitable (i.e. effective and affordable) alternatives were to become available.
TelstraClear
Not supported – counterproductive for everyone else if suitable (i.e. effective and affordable) alternatives were to become available.
JDA & Associates
Not supported – counterproductive for everyone else if suitable (i.e. effective and affordable) alternatives were to become available.
Vodafone
Not supported – counterproductive for everyone else if suitable (i.e. effective and affordable) alternatives were to become available.
Genesis Energy
Little difference between a and b options.
Environment Bay of Plenty
Least preferred (last of six)
Local Government NZ
Support, but does not provide incentives to make supply more sustainable, only more economic.
Rural Women of NZ
Give qualified support to this option, but note that unlikely to be taken up. Recognise that may hinder development of alternatives.
Federated Farmers
Preferred option.
French Pass Sea Safaris
Support implied.
French Pass Residents Inc
Support implied.
Eastland Network
Not favoured. Hinders opportunity for lines companies to be able to make economic return on their network or provide alternatives. Supply alternatives as a replacement for uneconomic lines might have positive spill-over effects for consumers in terms of cost reduction and quality of service.
Marlborough Lines
Many lines built in 1950s/60s require significant renewal or replacement expenditure over the next decade or two. While current subsidy is sustainable, any significant increase in cross-subsidy arising from need for renewal/replacement risks cross-subsidy becoming unsustainable.
Waitaki Power Trust
Preferred option – counter intuitive, unjust, unfair that legislation could permit a service to be withdrawn should a lines company decide to do so on economic grounds alone, when that consumer has a financial interest in the provisioning Company and requires line function services by the Company to continue.
Recommends repealing sub clause 6 and all reference to time lines.
Eastern Bay Energy Trust
Supports option. Recommends that subsection 6 of S62 of the Act be repealed; meaning that s62 of the Act would no longer expire in 2013.
Electricity Networks Association
Reasons given for inclusion of original sunset provision are equally valid to consideration of a proposal to extend the s62 obligation beyond 2013.
- Difficulty in valuing an obligation in perpetuity. Unfair to impose an unlimited obligation for continuance of supply where that obligation would mean that lines companies would have severe difficulty meeting the asset valuation requirements under the Commerce Act.
- Prospect of new technologies – ENA believes if obligation in perpetuity no incentive to continue research into alternative electricity supply methods.
- Obligation to serve distant consumers difficult to maintain in the face of competition – regulatory and policy changes mean obligation is difficult to maintain, but for different reasons. Part 4A, EIRA, ownership of existing works.
Vector
Obligation should not be extended beyond 2013 in current form. Should be provision for flexible approach which enables new technologies to be substituted for line supply as they come to the end of their lifetimes.
Contact Energy
This option makes it very difficult to economically justify a switch to any alternative supply, both now and in the future. It also discourages research and development into alternatives.
Northland District Health Board
Support; electricity is not an optional extra, it is a basic necessity. If lines companies assess that particular rural lines are uneconomical, they have to ensure an alternative is feasible.
Clutha DC
Support
Southland DC
Support
Ruapehu DC
Should be considered if supply is safe, affordable and reliable no matter where one lives; consumers fully informed within adequate timeframes; could be a burden just to maintain one form of supply.
Option B: Continuance of obligation to maintain supply, using lines or alternatives, with no expiry date
Subsection 6 of section 62 is repealed so that services must be supplied in perpetuity, but lines companies can choose whether this is by lines or through an alternative method such as remote area power system (RAPS).
Power Systems
Best option from point of view of the consumer
Richard Leckinger
Preferred option, allows lines companies to seek least cost option.
National Institute of Water and Atmospheric Research (NIWA)
Allows new optimal total system provided definition and quantification of energy supply is a shared agreement between provider and consumer.
David MacClement
The expectations around price, quality, reliability and capacity will vary with location – more distant consumers should have financial and legislative incentive to move to supplying a larger fraction of their needs locally.
Sustainable Energy Association NZ
Board prefers option B, but this may not be the preference of members.
Fonterra
(Implied support option B). Continuance of current obligation with emphasis on security and cost of supply. Only when new technologies can compete on the basis of critical reliability and cost criteria should consideration be given to relaxing current obligations.
TelstraClear
This is a good option: does not attempt to pick a particular technology.
JDA & Associates
This is a good option: does not attempt to pick a particular technology.
Vodafone
This is a good option: does not attempt to pick a particular technology.
Mighty River Power
Support allowing ELBs to maintain their obligation to supply thought alternative supply mechanisms where this is lower cost.
Genesis Energy
Option B provide only weak incentives for lines companies to find the least cost means of continued supply to remote consumers. On balance of the options, this should be supported.
Thames Coromandel DC
Supports this option (note submission described this as option D, but uses the above description). May raise the issues of cost to providers. Consumers might have to adapt to an alternative method of supply, if more economic.
Environment Bay of Plenty
Preferred option (first of six)
Local Government NZ
Support; more of a user-pay system
Rural Women of NZ
Preferred option (subject to issues raised in submission). Has potential to remove hindrances to development of alternatives and also removes the element of compulsion to change from the consumer.
Federated Farmers
Second most preferred option. Deserves further consideration. Problems with alternative supply would need to be addressed.
South Island High Country Federated Farmers
Preferred option provided the total cost of supply is on par with lines supply.
Scanpower
Broadly supports option – as locally owned trust, all consumers entitled to supply, urban townships in area dependent on rural, given ongoing developments in alternatives, flexibility to use alternatives is desirable.
Eastland Network
Favours option. Provides certainty for affected parties. Pre 1993 consumers assured continuance of supply and lines companies can choose to supply alternatives where this is more efficient. Alternatives may reduce need for cross-subsidy.
Marlborough Lines
Completely unworkable – individual negotiations with up to 2500 consumers would be time consuming and costly. Majority of consumers would not be happy with alternatives offered, particularly if those alternatives resulted in higher operating costs.
Eastern Bay Energy Trust
Supports as an alternative to option A.
Vector
(If ongoing obligation) Decision of who chooses technology depends on type of subsidy arrangement. Ideally end consumer should make trade-off between costs and performance. In the event a subsidy regime is discontinued then consumers would be able to make relevant trade-offs between price and delivery mode. If obligation on some party to provide subsidised service, then customers do not face full costs, and it must be decision of the obligated supplier or agent providing subsidy as to what service delivery modes are most cost-effective, particularly if there is no ability to levy customer contribution. If customer prefers a different mode would need to make a contribution to receive more costly service.
Environment Waikato
Option B as second choice (after F). Weather events linked to climate change increase risk of line damage; need to ensure repair of lines to rural communities.
Southland DC
Support
Hurunui DC
Support – Electricity network is essential national infrastructure – certainty and reliability of supply is essential to maintain economic and community well-being. The use of alternatives to lines will encourage the development of new knowledge and expertise in remote area power generation.
Ruapehu DC
Should be considered if supply is safe, affordable and reliable no matter where one lives; consumers fully informed within adequate timeframes; could be a burden just to maintain one form of supply.
Option A and B Questions
a) Should access to electricity supply for pre - 1993 connections be maintained with no expiry date? What issues could this raise?
Not explicitly stated, but implied YES (in options preferred): Rural Women, Federated Farmers, SI High Country Fed Farmers,
Richard Leckinger
No expiry date. Could raise concern with those who have post-1993 contracts.
National Institute of Water and Atmospheric Research (NIWA)
A blanket continuance of lines supply with cross-subsidy appears unfair to those post-1993 consumers that have paid or are paying the full cost of their connection.
Sustainable Energy Association NZ
Yes maintained but provided in such a way that customers re not disadvantaged by making a choice to change their supply options. Pay a remote energy allowance directly to the consumer but allow lines companies to charge cost-reflective.
Environment Bay of Plenty
Limited expertise in DG. Commission a team to provide technical advice to lines companies on alternative supply
Scanpower
Yes – Scanpower continues to maintain supply to all areas.
Marlborough lines
Yes – subject to the right for a lines company to levy all consumers connected to a section of reticulation when /if significant expenditure is required to renew or replace all or part of the reticulation. Levy would be payable by all consumers who elect to remain connected.
Network Tasman
Unacceptable to extend obligations without changes to the current policy and regulatory environment. Proper recognition of full costs of supply required. Assurances about asset valuations are necessary. Assurance about ongoing sustainability of cross-subsidisation is fundamental.
Top Energy
No economic justification for inclusion of original provision. No justification for continued inclusion. Termination will raise many social issues; these are issues for the government to address and fund, not individual power consumers or lines companies.
Orion
See comments under additional options. We note that a requirement for supply in perpetuity would place customers connected before 1993 in a superior position to those connected after 1993, which do not have any certainty their line function services will be maintained.
Counties Power
Legislating an obligation to continue supply, in whatever form, is a poor solution and is subject to the inevitable mechanism of unintended consequences. Risk of perverse outcomes and unworkable solutions outweighs any potential benefits.
Collective submission - 18 lines companies
Yes – for consumers who wish to maintain connection subject to standard conditions of supply (tariffs, quality of supply, contributions toward investment in dedicated assets). This involves balancing the needs of individuals with community as a whole. Potential issues include conflicts with other legislation/policy which may impose requirements on ELBs contrary with obligations to act as successful businesses and to meet needs of community.
Top Energy Consumer Trust
Should be openly acknowledged that it will never be politically acceptable to allow existing consumers to be disconnected. Once this acknowledged, obvious answer is that the obligation must continue.
Electricity Networks Association
Paper has not established a case to extend section 62. Issues raised include:
- Inequitable to supply consumers connected pre-1993 on more preferable terms than post-1993. However, this is not an argument for "updating" the obligation.
- Incongruous with government's infrastructure policy for other infrastructure sectors.
Environmental impacts
- Little incentive to consider local micro-generation given section 62 and other regulatory settings e.g. EIRA
- Environmental cost of transporting electricity large distances would remain, environmental benefits of local micro-generation would not be utilised.
Economic implications
- Continued cost of providing electricity on "uneconomic" lines would be cross-subsidised by urban consumers.
- CC's application of part 4A could make it increasingly difficult for lines companies to subsidise cost of providing "uneconomic" lines.
Practical implications
- Existing ambiguity on whether lines "lawfully installed" would make maintenance and repair even more expensive and difficult.
- Increasingly difficult to determine what was existing at 1 April 1993, and what has been installed since.
- Obligation would be difficult for lines companies to cost.
Vector
No basis for locking in any particular method of supply beyond 2013. Retention of existing obligation likely to inhibit uptake of renewable energy generation projects. Likely to promote inefficiency in medium to long term, both in terms of increasing demand-side efficiency and in terms of new investment in alternatives.
Extending present obligation will simply "prolong the inevitable" and lead to extended consumer uncertainty in terms of what will happen once it is removed, whenever that occurs.
Supports an option that is neutral to technology used, but does not support approaches which mandate lines company should be the supplier without suitable protection mechanisms against unfair competition from new entrants competing to reticulate new subdivisions in urban areas.
Powerco
No. Obligation to supply LFS in perpetuity would slow development of alternatives market and would be uneconomic. To be affordable would require some form of subsidy in perpetuity. Inequity of obligation only being available to pre-1993 consumers would continue. Obligation to continue to provide energy supply in perpetuity would enable "integrated energy solutions" but as above would continue inequity between classes of consumers.
Network Waitaki
There needs to be an expiry date for pre 1993 connections as lines were never designed to last indefinitely and have not managed on that basis. NWL would prefer all supplies were treated equally such that no distinction is made for pre 1993 connections.
Marlborough District Council
Lines only with no expiry would dampen the market for alternatives. Better option is for lines or alternatives with no expiry date.
b) What expectations should there be from consumers around price, quality, reliability and capacity for continuance of supply (either by lines or by alternatives)?
Power Systems
Reliability is not expected to get any better and expect the price will increase.
Richard Leckinger
As they are now.
National Institute of Water and Atmospheric Research (NIWA)
Expect supply appropriate to their situation. Needs of remote bach different from remote shearing shed.
Sustainable Energy Association NZ
Lines costs may be higher for similar quality and capacity, but consumer has choice to offset this cost though reduced capacity and reliability requirements.
New Zealand Police
Expectations would be for a continuance of status quo in all areas. Not much room for the trade- off of price vs. quality as quality, capacity and reliability remain the main drivers.
Ontrack
Expectations would be for a continuance of status quo in all areas. Not much room for the trade- off of price vs. quality as quality, capacity and reliability remain the main drivers.
TelstraClear
Expectations would be for a continuance of status quo in all areas. Not much room for the trade- off of price vs. quality as quality, capacity and reliability remain the main drivers.
JDA & Associates
Expectations would be for a continuance of status quo in all areas. Not much room for the trade- off of price vs. quality as quality, capacity and reliability remain the main drivers.
Vodafone
Expectations would be for a continuance of status quo in all areas. Not much room for the trade- off of price vs. quality as quality, capacity and reliability remain the main drivers.
Environment Bay of Plenty
Consumers might expect they will be asked to have a say on how they wish to manage a (DG) resource.
Rural Women of NZ
Should be able to have control over their supply even if financial assistance or subsidised. Should be provided at reasonable price (compared to the price of supply by lines) – lines company prices for alternative supply should be regulated. Should be adequate quality and where necessary provide three phase supply. Should be paid for any electricity feed back into grid by the consumer.
Federated Farmers
Better communication on issues of reliability would be required if supplied by alternatives.
French Pass Residents Incorporated
Prices to be paid for alternative energy should be similar compared to main grid users.
French Pass Sea Safaris
Power supply should be maintained at same price as other users and the same support services should remain.
Scanpower
On basis of support for option B consumers could expect services will continue on a basis consistent with past practice. In certain cases could expect the possibility of being supplied by alternative methods.
Marlborough Lines
Any suggestion consumers accept lower reliability standards is fundamentally flawed. Rural consumers, particularly primary production, require supply reliability.
Marlborough Lines
If continuance of supply is by lines, consumers should expect no less quality and reliability than they currently experience. However, the GPS requirement should be removed to allow lines companies to recover some of the additional costs of supplying remote/rural consumers by way of increases in line prices for connections in those remote areas.
Consumers should expect lines companies to provide capacity up to current (or contracted) levels. However consumers should accept capacity upgrades subject to lines company obtaining property rights for upgrades, and if these cannot be obtained at reasonable cost, system may not be able to be upgraded.
Network Tasman
Expectations should be for current service levels only with no expectations of enhancement – supply service from existing sunk cost structures while service potential remains intact.
Top Energy
Consumers always desire best quality of service for minimum price.
Orion
Customers should be prepared to pay a commercial rate, and prepared to make price/quality trade-offs. If supply maintained via alternatives, then this may well be less reliable.
Collective submission - 18 lines companies
Consumers should expect supply to be maintained, but also must anticipate terms and conditions will change over time and there may be differences for those with uneconomic services compared to those with economic services. There is a risk of rural/urban cross-subsidy becoming unsustainable if GPS requirement remains.
Top Energy Consumer Trust
Material increases in price are unsustainable, for the same reason private investment is not practical. Only feasible recognition of uneconomic power connection is service levels. May be that Commerce Commission will need to make allowance for lower quality thresholds where consumers supplied from uneconomic supplies.
Electricity Networks Association
We assume this question is a matter for consumer organisations to respond to.
Vector
Quality, Reliability, Capacity - Rural line supplies inevitably of lower quality than urban, it takes longer to attend to a fault given travelling times, meshed or looped designs that can be used in urban networks cannot be used for rural supplies. In designing a regime that considers whether RAPS are a viable alternative, urban/rural quality distinction needs to be considered in the first instance.
In principle alternative supplies can be designed to achieve similar service levels to rural line supplies, but necessary to evaluate what is a reasonable subsidy to be paid to uneconomic consumers with any higher service quality achieved through customer contributions above the level of that subsidy.
Price – This is an area of social policy, up to government to determine what is reasonable for rural consumers to pay for energy services. Any subsidy framework should be transparently administered, and lines businesses should not be commercially disadvantaged when they compete for new customers in their urban networks.
Powerco
Dependent on wider regulatory and policy objectives. There are clearly price/quality trade-offs to be made. In the current environment government has identified that all classes of consumers should have access to "electricity that is delivered in an efficient, fair, reliable and environmentally sustainable manner". This suggests consumers should have a reasonable expectation to receive affordable and reliable electricity.
Network Waitaki
Consumers should not have any expectations beyond what they are paying for.
Benefiting from subsidy is a privilege not an entitlement and those who are paying the subsidy should have some input on how much they are prepared to give.
Marlborough District Council
Expectations would be for the continuance of the status quo.
c) What scope is there for remote rural consumers to be supplied using alternative supply methods or for example, the method outlined in paragraph 47?
Power Systems
Change from 3-phase to single will cause issues and potentially increase the cost of utilising the power itself. 3-phase needed tor farming.
Richard Leckinger
Scope should be broad to allow lines companies to explore many different least cost options, including their own generation should changes to Commerce Act go forward.
National Institute of Water and Atmospheric Research (NIWA)
For remote communities at the end of a line, an islanded network can already be effective.
Sustainable Energy Association NZ
No alternative method can yet provide the benefits of network connection at a comparable cost and convenience to the consumer.
New Zealand Police
Would depend on the customer. Starting point is that existing level of service with the price pegged to urban consumers should be maintained.
Ontrack
Would depend on the customer. Starting point is that existing level of service with the price pegged to urban consumers should be maintained.
TelstraClear
Would depend on the customer. Starting point is that existing level of service with the price pegged to urban consumers should be maintained.
JDA & Associates
Would depend on the customer. Starting point is that existing level of service with the price pegged to urban consumers should be maintained.
Vodafone
Would depend on the customer. Starting point is that existing level of service with the price pegged to urban consumers should be maintained.
Environment Bay of Plenty
Lines companies may be able to identify the most suitable supply method
Rural Women of NZ
Development could be unduly constrained by the Resource Management Act 1992, or in the case of LPG, the Hazardous Substances and New Organisms Act 1996.
Federated Farmers
While alternatives exist, they are very expensive, are not as reliable as lines supply and require investment in a number of technologies to generate sufficient capacity.
French Pass Residents Incorporated
Professional services for development and maintenance of supply should remain. Do not see local involvement being an integrated part of that reliability.
Scanpower
Doubts feasibility of replacing 3-phase power with single phase due to rural load sizes in region. Considers there is scope for use of alternative methods, most likely distributed or micro-generation equipment. Non-standard supply contracts, providing for alternative price structures/reliability standards are a feasible option.
Marlborough Lines
Minimal cost savings from replacing a 3-wire system with a 2-wire system would not be justified in terms of inconvenience caused to consumers who require 3-phase supply. Replacement with SWER is generally not an option because of capacity constraints imposed by NZ Electrical Code of Practice for SWER systems (NZECP 41:1993), which limits current in a SWER circuit to 8 amps.
Majority of consumers would rather have ability to "flick the switch" than be bothered with the possible inconvenience associated with alternative supplies.
Network Tasman
High cross subsidies, reliability and simplicity of lines based services remove serious/useful incentives to adopt alternative supply methods for existing consumers.
Top Energy
Not the case that lines over-built in Top Energy's network. 18% SWER, built cheaply with result that many now require replacement.
Cost an inconvenience of alternatives means unlikely to get traction. Until cost reduces this is unlikely to change. Most likely driver for cost reduction will be international market, rather than NZ.
Orion
Very limited scope.
Collective submission - 18 lines companies
Although alternatives exist, these are currently not as economic as existing reticulated electricity for a similar standard of service. Costs of replacing 3-phase power with single phase do not result in material cost savings as only a minimal component of cost is associated with the conductor. For many consumers replacing 3 phase with single phase not acceptable.
Top Energy Consumer Trust
Alternative supply unlikely to get significant traction in the foreseeable future. Cost and operational inconvenience to users means few interested. Until cost reduces, this is unlikely to change. Most likely driver for cost reduction will be international market.
Electricity Networks Association
Not aware of any instances where lines companies have been able to delegate maintenance of remote lines to local co-operatives or where quality of lines to rural communities have been reduced as a way of reducing the cost of remote lines.
Electricity Networks Association
S62 obligation creates an artificial price for lines services to uneconomic customers, making it difficult to prove the economics of line supply to remote rural areas. ENA considers that this issue needs to be considered further.
Vector
Potential is already significant, given substantial costs of reticulation to some users. This potential will increase over time as alternatives improve and costs reduce. Investigating a number of technologies including wind.
In many cases substitution of single phase for 3-phase not technically possible, would be evaluated on case by case basis.
A better approach is to enable lines companies (or whoever else has obligation to supply rural consumers) to adopt a flexible approach which enables "tailor made" solutions.
Powerco
While there are other supply technologies, s62 creates an artificial price for line services to uneconomic customers, making it difficult to prove economics of line supply to remote rural areas.
Each of the different alternative supply methods has its own niche. SWER becomes an economic form of supply in remote areas with low customer density when the length of SWER reticulation becomes greater than around 5km. However with SWER there is limited ability for consumers to have three phase supply and the line is less visible from the air resulting in different risk profile for aircraft. Given that remote supplies are now being debated, it might be timely to review whether the 8 Ampere limit for SWER is still necessary or whether this limit can be increased.
Network Waitaki
NWL's network already comprises 30% single phase line construction in terms of system length. Service levels are already constrained by configuration (lack of interconnection) and low capacity. The cost of supply to remote areas is optimised in terms of least cost traditional line construction methods.
To get more optimal supply arrangements will require a shift in the function of network i.e. distributed generation, alternative and diverse energy sources within consumer's installations.
Marlborough District Council
Any drop in service should be accompanied by a drop in price; should be no drop in service for maintenance of emergency services.
Southland DC
Opposes any moves to downgrade 3-phase rural supply.
d) To what extent should there be a subsidy from other network users to those in remote, rural areas? (E.g. domestic urban consumers to domestic rural, remote consumers).
Power Systems
Discussion raises that directly affected or those who contribute feel this to be a fair option, but someone has to pay.
Richard Leckinger
Least cost option that maintains current level of access and reliability.
National Institute of Water and Atmospheric Research (NIWA)
Mature economic players should expect to be exposed to a full market forces, but likely that there are other socio-economic drivers.
Sustainable Energy Association NZ
A state responsibility exists to maintain access to the grid; differential 2:1 would not be unreasonable.
New Zealand Police
For domestic and small business users the subsidy should stay as it is. There is a significant public good in having good communications throughout the country removal of a subsidy to achieve pure economic outcomes would be nonsensical
Ontrack
For domestic and small business users the subsidy should stay as it is. There is a significant public good in having good communications throughout the country removal of a subsidy to achieve pure economic outcomes would be nonsensical
TelstraClear
For domestic and small business users the subsidy should stay as it is. There is a significant public good in having good communications throughout the country removal of a subsidy to achieve pure economic outcomes would be nonsensical.
JDA & Associates
For domestic and small business users the subsidy should stay as it is. There is a significant public good in having good communications throughout the country removal of a subsidy to achieve pure economic outcomes would be nonsensical.
Vodafone
For domestic and small business users the subsidy should stay as it is. There is a significant public good in having good communications throughout the country removal of a subsidy to achieve pure economic outcomes would be nonsensical.
Scanpower
Subsidy from urban to rural is almost inevitable due to complexity of user pays pricing, but also appropriate under current legislation.
Marlborough Lines
Have seldom had consumers express concern at current level of subsidy. Whether this is result of acceptance or ignorance of the situation is difficult to say. However, should lines prices increase significantly to meet future renewal/replacement costs, consumers will become more concerned with the level of cross-subsidy.
Network Tasman
Cross subsidy level will vary depending on network segment and customer mix. Ideally all segments should be priced to a level where they recover cash costs and preferably depreciation. Cannot be done with existing low user and GPS requirements.
Top Energy
Many consumers in Far North are residential consumers, in some cases supported by Government benefits that do not have the means to pay the much higher costs removal of subsidy would result in. Without alternative arrangements, cross-subsidies are the only way many consumers at the ends of the supply system can continue to have safe and efficient energy available to them.
Orion
For economic efficiency, no cross-subsidies, however there will inevitably be some. This is limited for new connections by way of a capital contribution if necessary. A similar solution for rural customers when line replacement is required could be effective. This would also enable economically-efficiency comparisons between alternative forms of supply.
Collective submission - 18 lines companies
This is partly a community judgement which already exists in tariff structures. Also endorsed in GPS. Generally, impact of cross subsidy is immaterial. For many ELBs provision of remote rural infrastructure supports farming sector, which in turn supports wider community. Where households in remote areas are characterised by low standards of living supported in part by central government welfare payments, financial contribution to community low, and cross-subsidy high. There appears to be role for central government in maintaining minimum standards, and through welfare system supporting low income households in meeting costs of supply, in order for ELBs to maintain an acceptable level of cross-subsidy.
Top Energy Consumer Trust
Many of those affected by a proposal to remove subsidies will be residential consumers, in some cases supported by Government benefits. These consumers simply do not have the means to pay the much higher costs removal of cross-subsidy would result in.
Electricity Networks Association
Government needs to consider this question in consultation with all stakeholders. From the lines companies' perspective, an issue is whether the cross-subsidy would be permitted under part 4A of the Commerce Act.
Vector
Does not support continuation of cross-subsidy in current form. Ensuring continuity of electricity supply at an affordable level should be delivered in a manner that ensures competition is promoted in alternate supplies for uneconomic customers and the competitive position of incumbents competing for new subdivisions in their urban areas is not artificially hampered by an internal cross-subsidy requirement.
Vector
Subsidy design should be based on some set of "reasonable" services with customers able to make contributions above a relatively fixed subsidy level to receive a superior type of service, including supply through power lines if that is their preference.
Powerco
Any subsidy should be transparent and explicit. Powerco's preference is for a national levy.
Cross subsidisation and regulatory pressures (e.g. CPI-X) result in some instances where the financial costs of supplying consumers are greater than the revenues they generate. This does not mean that these consumers are uneconomic to supply because the economics of supply is based on the alternatives for supply, which is a consumer is economic to supply with line function services as long as the cost of the alternative form of supply is more costly.
Network Waitaki
Average costing is appropriate for domestic consumers so long as this definition is restricted to the consumer's single principle place of residence. There does not appear to be any desire expressed by NWL's consumer base to see differential pricing between urban and rural consumers. Oamaru is a rural service town.
Line charges for non-domestic supplies should relate to assets and capacity involved and not energy volumes i.e. a 5kVA woolshed connection should generate the same revenue as a 5kVA workshop connection in town with the cost of providing that capacity is average costed.
A small portion of the NWL's business consumer load group would prefer to see cross-subsidy between domestic and non-domestic eliminated and average costing reduced to load group level averaging. This comes mainly from businesses competing in non-local markets. These consumers are a minority voice in the Consumer Trust that owns NWL.
The current argument for energy volume pricing is that variable consumption based pricing encourages lower consumption. However for an under utilised installation like a woolshed, consumption can be lower than the standing losses on the transformer i.e. the installation is a very inefficient load and the cost of this inefficiency is paid for by other consumers.
Pricing principles, objectives and methodology have to be defined before a subsidy and its appropriateness can be assessed.
Marlborough District Council
Subsidy should stay as it is; many urban consumers, few rural.
e) If the continuance of supply is by lines or alternatives, should lines companies be able to cross-subsidise alternative-supply customers from lines-connected customers?
Power Systems
Yes, subsidy should be available to some extent to all electricity consumers who want to provide their own sustainable and renewable electric energy.
Richard Leckinger
Yes, but only as the least cost option. This should not be about subsidizing alternatives just for the sake of it.
National Institute of Water and Atmospheric Research (NIWA)
If cross-subsidy does not apply to alternative-supply then this negates assumed objective of this policy.
Sustainable Energy Association NZ
Yes, but not in favour of this option unless the customer can freely disconnect from the network or not.
New Zealand Police
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
Ontrack
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
New Zealand Police
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
Ontrack
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
TelstraClear
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
JDA & Associates
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
Vodafone
Yes, would enable lines companies to prompt the market for alternative. Lines companies could negotiate a one-off payment to users for using alternatives to continue without lines company involvement.
Environment Bay of Plenty
In the renewable/alternative supply context, capital subsidy form rural to urban in terms of land use and resource harvesting. Alternative resource likely to free up supply. Public good in supporting energy supply to uneconomic areas. Cross-subsidising alternative supply seems reasonable.
Rural Women of NZ
An appropriate subsidy should be provided for alternative supply to recognise the contribution of the rural sector to present and future urban demands.
Lines companies should be regulated to provide financial contributions and advice for the development of alternative supply in recognition of the benefit it provides them.
Scanpower
If customers or small communities are supplied by alternative methods in the future, Scanpower acknowledges it may be possible to calculate more accurate customer charges, and for reasons of flexibility would prefer such an option remain open.
Marlborough Lines
Costs should be responsibility of consumer, with no contribution from lines company.
Network Tasman
Will create additional anomalies and misallocation of resources. Better to adopt cost reflective pricing in the first instance.
Top Energy
For the same reasons, this would have to be the case. Introduction of ability to allow lines businesses to determine how energy requirements should be met is a sensible position. There should be no restriction on how lines company achieves this outcome; minimisation of cost should always be part of any solution.
Orion
Any alternative should be able to be supplied via a competitive market. Any customer can choose to have some/all supply from alternatives and would not expect a contribution from the lines company. If a lines company was obliged to maintain supply and not able to achieve a commercial rate of return, then some form of subsidy would be required.
Collective submission - 18 lines companies
Should be no requirement for ELBs to supply by alternatives unless they choose to do so. Expected would do so for commercial reasons, and therefore should be no incentive to cross subsidise alternative supplies to a greater extent than existing cross-subsidies, or supply on a basis different to the existing standard terms and conditions.
Top Energy Consumer Trust
This would have to be the case for reasons outlined in c above.
Electricity Networks Association
It is not possible to meet the section 62 obligation of supply without seeking cross-subsidies form urban consumers.
Vector
Does not support subsidisation by other customers without suitable mechanisms being employed to protect from unfair competition in incumbent urban networks.
Powerco
Yes – central levy.
Network Waitaki
Lines only provide part of the supply. If consumers paying for line function services are expected to subsidise alternative supplies what contribution will also come from retailers and will the consumers who have alternative supplies be expected to contribute to other average costed parts of the supply like transmission.
One of the principles of the industry reforms has been to minimise the monopoly elements and eliminate transfer payments between sectors. Average costing and non-commercial provision of social services does not fit the reforms.
f) What terms and conditions for continuance of supply do consumers that were connected after 1993 have in their contracts?
Sustainable Energy Association NZ
No comment.
New Zealand Police
Unclear for consumers, retail contracts are vague. Only area about continuance of supply is the force majeure section.
Ontrack
Unclear for consumers, retail contracts are vague. Only area about continuance of supply is the force majeure section.
TelstraClear
Unclear for consumers, retail contracts are vague. Only area about continuance of supply is the force majeure section.
JDA & Associates
Unclear for consumers, retail contracts are vague. Only area about continuance of supply is the force majeure section.
Vodafone
Unclear for consumers, retail contracts are vague. Only area about continuance of supply is the force majeure section.
Scanpower
Scanpower's terms and conditions are silent on this matter.
Marlborough Lines
Use of system agreement is silent on question of continuance of supply to consumers. Understands most retailer contracts are silent in this regard and notes MUoSA promulgated by EC also appears silent in this regard.
Network Tasman
Additional customers connected in uneconomic areas since 1993 are entitled to be treated ostensibly on same terms as those connected pre-1993. At no stage have these new consumers entered supply contracts with specific termination dates, so they hold reasonable expectations their supply will remain intact beyond 2013.
Top Energy
No special provisions for customers connected after 1993.
Orion
Removing S62 obligation just puts customers connected before 1993 in equivalent position to those connected after. While the paper expects terms and conditions for continued supply to customers would be part of a contract, we doubt this is provided for explicitly.
Our Delivery Service Agreement is silent on the question of continuance to supply to consumers. We understand most retailer contracts with consumers are silent in this regard. Note MUoSA agreement promulgated by EC is also appears to be silent.
Collective submission - 18 lines companies
As far as we are aware there are no specific provisions in standard terms and conditions for continuance of supply.
Top Energy Consumer Trust
Understand there are no special provisions for customers connected after 1993.
Waitaki Power Trust
Not true to say that all connections after 1993 would have been made under a contractual arrangement between lines company and consumers. Recommends that section 62 of the Act be amended to state the purpose of that section to cover all consumers prior and post 1992 to avoid the potential for misinterpretation of sub-clause 2.
Electricity Networks Association
Most lines companies have not entered into specific agreements with new consumers post 1 April 1993. In the absence of such agreements, ENA believes there is no guarantee of continuance of supply or that any lines built after 1 April 1993 are required to be repaired or maintained.
Powerco
Powerco does not specifically provide a guarantee of continuance of supply or that any lines built after 1 April 1993 will be repaired or maintained in perpetuity. Currently Powerco, in an operational sense, does not treat the pre 1993 connections any differently from the post 1993 connections.
Network Waitaki
Consumers do not have a direct contracted position with line companies. Once connected only a retailer can terminate supply. Line companies operate via connection standards procured via retailers. A line company can issue the retailer with a non-compliance notice and if the retailer does not wish to pursue the issue with the consumer they can terminate their contract. The obligation to supply does not apply to retailers yet they are the ones with the contract to supply. Access and tree control are biggest issues. If line companies are to have responsibility for maintaining supply then the consumer should not be permitted to impede them in their duties.
Marlborough District Council
In practice it is likely that consumers do not know that there is no statutory commitment. Retail contracts are vague. Model interposed agreement doesn't talk about possibility of disconnection it just states that all installations that comply to remain connected.
Hurunui DC
Support: essential infrastructure, access to and cost of supply for rural users should be comparable to other users
Option C: Continuance of obligation to maintain line function services expires but lines companies provide information on intentions in advance
Requirement for lines companies to provide information on intentions and notification if they intend a change in, or removal of, supply to consumers.
Richard Leckinger
Unacceptable as it marginalizes customers who are ill equipped either financially or technically to deal with organising their own independent supply.
National Institute of Water and Atmospheric Research (NIWA)
Effectively a cut-off with notice
David MacClement
Not good enough.
Genesis Energy
No need for consideration because it makes the GPS statement meaningless
Environment Bay of Plenty
Information to include local demand patterns, time required for a process to take its course, information to allow a remote rural community to develop a local energy outlook. Second preferred option
Far North District Council
No comment, implicitly not supported
Local Government NZ
Not generally supported
Rural Women of NZ
Oppose this option as inadequate and unfair.
Federated Farmers
Oppose this option. Does not address uncertainty.
Eastland Network
Practicability of option is questionable. Economic deliberations will likely cause distributors not to replace lines as soon as repair and maintenance costs are getting too high. Additionally, damage to lines by extreme events cannot be foreseen and in this case it is impossible to provide the necessary information for affected consumers. Although favourable for lines businesses, will create uncertainty for consumers.
Counties Power Consumer Trust
Supports option – only one option which is positive, non-interfering and will have most balanced financial impact on all concerned. A reasonable notice period would enable all concerned to make informed choices, and plan for/negotiate alternative arrangements.
Marlborough Lines
Essential for law to be drafted in such a way that consumers were unable to challenge lines company's decision to remove supply at some stage in future. Otherwise costly and time-consuming litigation would result as consumers attempted to force a reversal of the lines company's decision.
Top Energy
Proposal not acceptable. Concerned Ministry assumes informed debate exists; many consumers are individuals in many cases living on government benefits with lower levels of education. This makes suggestions such as forming co-operatives for ownership and maintenance unworkable.
Counties Power
Most sensible solution. Believes option would provide adequate customer (and Government) peace of mind, particularly if lines company required to give five year advance notice period prior to ceasing provision of line services, including post-1993 connections.
Top Energy Consumer Trust
Proposal not acceptable. Majority of those likely to be affected by termination of the obligation will not be in a position to finance alternative energy arrangements. Must be assumed that vast majority of consumers have no understanding of the issue. Suggestions in paragraph 69 impractical and unworkable.
Waitaki Power Trust
Opposes option
Eastern Bay Energy Trust
Does not support
Network Waitaki
Prefers option. Considers 2-5 years notice fair and suggest this be linked with an assessment of the current condition of network assets involved and the opportunity for consumers to assume responsibility for them.
Southland DC
Opposes – rural consumers require more certainty than can be guaranteed under this alternative
Ruapehu District Council
Does not support
Option D: Continuance of obligation to maintain line function services expires but lines companies assist transition from lines supply to alternative
Requirement for lines companies to assist in management of a transition to alternative provision where they wish to no longer maintain "uneconomic" lines.
Te Aroha Kanarahi Trust
Support. Reasons are 1. Remoteness and sparse population means community cannot pay to maintain lines 2. Ownership of the alternative generation – acknowledges that this requires maintenance 3. As NZ becomes more inclined to alternative energy one would see greater capacity in this area.
Richard Leckinger
Unacceptable as it marginalizes customers who are ill-equipped either financially or technically to deal with maintaining their own independent supply. Barriers to understanding system are huge. Fails efficiency test as decisions around where a transition obligation end are left unmade. Fails fairness test as rural users potentially lose their access at reasonable prices. Fail reliability test as consumers not equipped to deal with alternative system. Could argue it passes environmental sustainability text but more like to be using small gas fired generation rather than a boom in renewable.
National Institute of Water and Atmospheric Research (NIWA)
Lies between B and C in rank (B being preferred).
David MacClement
Transition will vary with region and company. More work needed. Long enough period so consumers can be convinced of the need to get personally involved in their energy supply.
Genesis Energy
No need for consideration because it makes the GPS statement meaningless.
Environment Bay of Plenty
Pilot studies on such arrangement needed. Is $150,000 case provided by Powerco an extreme case or a representative example? Rank third of the six options.
Far North District Council
No specific comment, implicitly not supported.
Local Government NZ
Not generally supported.
Rural Women of NZ
Give limited support to this option (subject to issues raised in submission). Lines companies should be required to provide information and assistance (including financial) in advance of any change.
Federated Farmers
If obligation to supply ends, then this is preferred option (subject to further work on transition issues).
Eastland Network
Do not support. Potentially imposes increased costs on lines companies as obliged to manage transition to alternative supplies. As it is not clarified who is responsible after transition period, creates uncertainty for consumers and lines businesses.
Marlborough Lines
See comments on option C.
Top Energy
See comment on option C.
Top Energy Consumer Trust
See comment on option C.
Waitaki Power Trust
Opposes option.
Eastern Bay Energy Trust
Does not support.
Southland DC
Cautious – support in principle, but prospect of rural consumers being even more disadvantaged by high electricity costs
Ruaphehu DC
Should be considered if supply is safe, affordable and reliable no matter where one lives; consumers fully informed within adequate timeframes; could be a burden just to maintain one form of supply.
Option C and D Questions
a) If an advance notice period is used, what length of time should it be?
Power Systems
Notice period 3-5 years, long enough for consumers to facilitate the necessary funds and arm themselves with the required ability and knowledge to utilities and maximise (alternative) solutions to the fullest.
National Institute of Water and Atmospheric Research (NIWA)
Period should be linked to consumer consent, rather than a time-frame. A time –frame gives no incentive on lines companies to ensure that the consumer is fully aware of and familiar with the pros and cons of the alternatives.
New Zealand Police
Long enough for practical and cost-effective options to be developed. Risk is that development of a site could become marginal and lines removed before reaching replacement age.
Ontrack
Long enough for practical and cost-effective options to be developed. Risk is that development of a site could become marginal and lines removed before reaching replacement age.
TelstraClear
Long enough for practical and cost-effective options to be developed. Risk is that development of a site could become marginal and lines removed before reaching replacement age.
JDA & Associates
Long enough for practical and cost-effective options to be developed. Risk is that development of a site could become marginal and lines removed before reaching replacement age.
Vodafone
Long enough for practical and cost-effective options to be developed. Risk is that development of a site could become marginal and lines removed before reaching replacement age.
Environment Bay of Plenty
Time for notification should match lead time for alternative supply investment
Rural Women of NZ
15 years for Option C, 10 years for Option D
Winston Oliver
5 years
Counties Power Consumer Trust
5 years
Marlborough Lines
If option were adopted, between 2 and 4 years.
Network Tasman
Advance notice must be given, should be at least 3 years.
Orion
3 year notice period appropriate
Collective submission - 18 lines companies
Do not support advance notice option, but two years notice is sufficient. Should either of these options be considered they should provide for negotiated outcomes between the ELB and remote consumers as these may be in the best economic interest of both the ELB and consumer.
Electricity Networks Association
Lines companies would not immediately discontinue supply to "uneconomic lines" when section 62 expired in 2013. However, if substantial repair/maintenance was needed, particularly after damage as a result of natural disaster, supply could be discontinued once the costs of repair and maintenance of the lines had been established as "uneconomic". Accordingly, it would be difficult to establish an advance notice for discontinuance of supply.
Vector
Notice requirements should relate to reason for decommissioning the lines. Timeframe should be established through a stakeholder working group so perspective of all stakeholders can be reasonable accommodated in a clear transition process. Clear transition plan made available to uneconomic consumers setting out dates at which services will be discontinued and providing sufficient notice to enable alternatives to be established.
Where permanent decommissioning is accelerated due to a storm event or other force majuere, notice should not be required. Rather, steps should be taken to ensure that consumers are provided with temporary alternative energy supplies, if and when this occurs, pending installation of a permanent solution.
Powerco
Two years subject to particular circumstances such as if a significant event necessitates substantial repairs.
Network Waitaki
A 5 year notice period would align with network inspection cycles. This would reduce deferral of rebuilds required after storms as at least a 5 year service life will be needed.
Marlborough DC
Don't consider that a sensible timeframe can be put on it
b) What other requirements could or should be placed on lines companies if continuance of supply expires?
Power Systems
Responsible for assistance either financially or otherwise for the distribution of literature to assist consumers
National Institute of Water and Atmospheric Research (NIWA)
Storms etc should not be a reason for discontinuing supply.
New Zealand Police
Up to date register of how much each ICP is being subsidised. Clear policy on what uneconomic is so a customer can ascertain it and what plans were for such sites.
Ontrack
Up to date register of how much each ICP is being subsidised. Clear policy on what uneconomic is so a customer can ascertain it and what plans were for such sites.
TelstraClear
Up to date register of how much each ICP is being subsidised. Clear policy on what uneconomic is so a customer can ascertain it and what plans were for such sites.
JDA & Associates
Up to date register of how much each ICP is being subsidised. Clear policy on what uneconomic is so a customer can ascertain it and what plans were for such sites.
Vodafone
Up to date register of how much each ICP is being subsidised. Clear policy on what uneconomic is so a customer can ascertain it and what plans were for such sites.
Environment Bay of Plenty
Case by case basis, with agreement.
Winston Oliver
Lines companies should have to consult with consumers on uneconomic lines.
Counties Power Consumer Trust
Counties Power will be requested to include in its statement of corporate intent that it will advise affected consumers of the rationale behind any intention to cease supply.
Marlborough Lines
Lines company should not be required to assist in transition to alternatives. The consumer will have had at least two years to make alternative arrangements.
Network Tasman
Only reasonable role for distributors would be providing some form of pre-installation fitness for purpose review of proposed alternative systems.
Orion
No case for requirements other than notice period. However consider it necessary to:
- Encourage Commerce Commission to allow commercial return on assets employed without expiry. Could be achieved by the Commerce Commission adopting an ODRC system.
- Remove s99 of GPS
Electricity Networks Association
Not sure there would be a need for other obligations to be placed on lines companies. Up to Government and other stakeholder to address alternative supply options, including local generation potential for remote consumers.
It is clear greater benefits in energy efficiency can be obtained through passive solar design and energy efficiency than from local supply generation itself. Options in the discussion paper that propose lines companies assist customers in transferring to micro-generation will be difficult to meet as lines companies would not be able to assist customers transfer from existing lines supply services by passive solar design and assisting energy efficiency.
Vector
Given lines business would have information on decommissioning date, would at least have to work closely with alternative supplier to ensure an orderly transition. Beyond that obligation, so long as there is a competitive market for alternatives and appropriate lead times for alternatives to be installed, there need be no other obligations on the lines business.
Potentially there could be a role for the distributor as a "supplier of last resort" which could be used in the event that an alternative supplier was not available or was unwilling to provide service. Distributors would presumably be willing to provide that service so long as they received appropriate financial compensation.
Powerco
These are issues best addressed by consumers and retailers. Powerco would expect that the imposition of additional responsibilities on any organisation (retailers or lines companies) would be compensated for.
Network Waitaki
Provision of condition assessments and maintenance recommendations to ensure the remaining service life is reached. Offering to transfer ownership and/or cost responsibility to a consumer and/or collective of consumers is preferential to physically pulling out assets.
Marlborough DC
Provide an up-to-date register of how much any ICP is being cross-subsidised. Policy to determine is consumer is uneconomic.
c) What role would you expect the retailer to take as the continuance of supply expires and a change in supply is signalled?
Power Systems
Assist in education process.
New Zealand Police
Would oppose lines companies using retailers to advise their customers. Experience of dealing with line issues through a retailer is not good.
Ontrack
Would oppose lines companies using retailers to advise their customers. Experience of dealing with line issues through a retailer is not good.
TelstraClear
Would oppose lines companies using retailers to advise their customers. Experience of dealing with line issues through a retailer is not good.
JDA & Associates
Would oppose lines companies using retailers to advise their customers. Experience of dealing with line issues through a retailer is not good.
Vodafone
Would oppose lines companies using retailers to advise their customers. Experience of dealing with line issues through a retailer is not good.
Network Tasman
Retailers unlikely to want to become involved unless promoting alternatives. May be able to provide historic load/meter data to help with design of alternative systems.
Orion
Some retailers and distributors would develop to be energy retailers. That is, supplying energy in a non-regulated competitive environment.
Electricity Networks Association
See response to question (b).
Vector
If market for supply of alternatives is made competitive then this would potentially be a new business opportunity for retailers, at their discretion. Their involvement is not necessary beyond their existing responsibilities regarding customer disconnections.
Powerco
See response to question (b).
Network Waitaki
Retailers should have the lead the role in managing a transition from a lines connected supply to an alternative. The alternative is more directly related to their core business, they are resourced to manage a large customer base, and have more capability with respect to giving/access technical advice.
Line companies not structured and sized for and have nothing to offer other than line function services.
Marlborough DC
Lines company responsibility. Experience of trying to deal with lines issues via a retailer is not good. Don't believe retailers would want any role.
d) At what point after a lines company has assisted a transition should its responsibility cease?
Power Systems
Once the educational and handshake stage has ceased their responsibilities would cease.
National Institute of Water and Atmospheric Research (NIWA).
Ceases when consumer is satisfied with the performance of the alternative system.
New Zealand Police
Lines companies should have an obligation to supply by lines or alternatives for an extended period of time.
Ontrack
Lines companies should have an obligation to supply by lines or alternatives for an extended period of time.
TelstraClear
Lines companies should have an obligation to supply by lines or alternatives for an extended period of time.
JDA & Associates
Lines companies should have an obligation to supply by lines or alternatives for an extended period of time.
Vodafone
Lines companies should have an obligation to supply by lines or alternatives for an extended period of time.
Marlborough Lines
Rejects suggestion lines company should be responsible for cost of transition. However, if this is imposed, line company responsibility should cease when alternative supply installed and proven to meet agreed capacity requirements.
Network Tasman
Lines companies have specialised expertise in line systems not alternatives. Potential conflicts of interest having lines companies promote alternatives. Private markets best placed to provide alternatives. Lines companies' involvement will potentially crowd out other businesses and allegations of cross-subsidisation are probable.
Lines companies should have a very limited role in transitions and responsibility should cease at end of notice period.
Orion
Do not consider distributor best entity to provide assistance for transitions. However, if necessary, responsibility of lines company should cease when alternative supply has been installed and proven to meet agreed performance requirements.
Collective submission - 18 lines companies
If customer chooses alternative supplied by a party other than ELB, ELB should assist in transitioning to new arrangement, and from the point in time new supply is commission, obligations should cease, unless some form of connection retained.
If ELB maintains responsibility for alternative supply, should be subject to standard commercial terms and conditions, which may differ from conditions for reticulated supply, but should be negotiated with the customer.
Electricity Networks Association
See response to (b) above.
Vector
Does not consider lines company should be responsible for assisting a transition beyond notifying the customer that the relevant lines are to be decommissioned. Given relaxation of restrictions on generation by lines companies, there is a possibility that they may supply (and perhaps lease) equipment used for alternatives, in which case they will obviously continue to have a role in that new capacity.
Powerco
See response to (b) above.
Network Waitaki
Line company involvement automatically ceases as soon as the consumer terminates their contract with their energy retailer.
Marlborough DC
Lines companies should have an obligation to supply for an extended period of time.
Option E: Continuance of obligation to maintain supply, using lines or alternatives, for a limited time beyond 2013
2013 date in subsection 6 is changed, and section 62 continues until a new expiry date. Lines companies could maintain supply via alternatives or lines.
Power Systems
Only prolong the final result – make a decision either way.
Richard Leckinger
Postponing the decision is a cop-out. No technological shift is going to appear in the medium to long term that alters the fundamental principles involved.
National Institute of Water and Atmospheric Research (NIWA)
Same as B if not reviewed and acted on in time (context suggests submitter means C).
David MacClement
Best option.
Genesis Energy
No need for consideration because it makes the GPS statement meaningless.
Environment Bay of Plenty
Rank fifth of the six options.
Far North District Council
No comment, assume not supported.
Local Government NZ
Not generally supported.
Rural Women of NZ
Oppose this option. Hinders the development of alternatives and contains no requirement for notice or assistance.
Federated Farmers
Oppose this option. Only pushes the problem out and will not address uncertainty.
Eastland Network
Does not favour option – would create further uncertainty if left undecided what happened after transition period, does not create incentives for further investments into network assets and involves incremental costs for distribution companies.
Marlborough Lines
Extending 2013 date does not provide certainty that rural consumers are looking for. While impossible to predict the future, history does not give any comfort that development of alternatives over the next five to ten years will be at a sufficient stage to offer viable alternatives at reasonable cost.
Top Energy
Having concluded it is unacceptable to terminate obligation to maintain supply, any option that defers final determination is unnecessary and inappropriate. Those affected have to live with uncertainty for an extended period.
Top Energy Consumer Trust
Proposal not acceptable. Majority of those likely to be affected by termination of the obligation will not be in a position to finance alternative energy arrangements. A deferral of the final date will change nothing other than to pass the problem to someone else in the future. Those affected will have to live with the uncertainty for an extended period.
Waitaki Power Trust
Recommends option eliminated from serious consideration – would simply delay decisions on extremely important matters which need to be made as soon as possible. Not in best interest to create a situation where lines companies cease to plan ahead for maintenance work that needed to be done if a particular line was tagged for decommissioning beyond a certain date.
Eastern Bay Energy Trust
Does not support.
Southland DC
Opposes.
Ruapehu DC
Does not support.
Option E Questions
a) Should the transition period be extended?
Power Systems
Extension not justifiable.
National Institute of Water and Atmospheric Research (NIWA)
Without clear direction and direct action, extending period only pushes the issue forward.
New Zealand Police
Yes until there are suitable alternatives to lines. Would need another scheme to encourage alternatives.
Ontrack
Yes until there are suitable alternatives to lines. Would need another scheme to encourage alternatives.
TelstraClear
Yes until there are suitable alternatives to lines. Would need another scheme to encourage alternatives.
JDA & Associates
Yes until there are suitable alternatives to lines. Would need another scheme to encourage alternatives.
Vodafone
Yes until there are suitable alternatives to lines. Would need another scheme to encourage alternatives.
Environment Bay of Plenty
Changing expiry date might hot have any significant meaning in terms of reducing the negative impact of discontinuing electricity supply.
Marlborough Lines
Do not believe anything gained by extension of transition.
Network Tasman
Extending transition raises same issues as outlined in options A and B but potentially obviates need for periodic review if extension is reasonably short.
Orion
Do not believe anything is gained from extension.
Collective submission - 18 lines companies
Not supported – simply delays decision.
Electricity Networks Association
ENA considers the discussion paper has not established a case to extend section 62. Instead, ENA considers that the review needs to be continued and consider all the matters set out in the ToR and the other relevant issues raised in our submission.
Vector
2013 date should not be extended. Technologies already exist which can be cost-effectively used to substitute for line supplies.
Powerco
No - an extension is simply deferring the decision. Alternative technologies are already available and economic when considering the full costs of replacing lines. There is sufficient time between now and 2013 to address any transitional issues that may exist.
Network Waitaki
No extension to the transition period is needed. There has already been a 20 year period to prepare. Line assets have a half life of 22 years so the industry should already be in a steady state of replacing supplies installed by RERC subsidy. There is no reason to believe the status quo will change in 2013.
Marlborough DC
Extend until there are suitable alternatives to lines
b) If so, how long should it be extended for and what should happen at the end of the period?
Vodafone
20 years, if no change in time then extend period again.
Environment Bay of Plenty
Extension required in absence of co-ordinated progressive approach. Australia has a scheme "Renewable remote Power Generation Programme"
Network Tasman
Maximum of 7 years to 2020. Either obligation would cease at terminal date or further review would be required to determine the way forward given environment at the time.
Electricity Networks Association
If ENA's submission is not accepted and the outcome of the review is that the section 62 obligation should be extended, then it should be extended only on the basis of another limited time period and on the following conditions:
- A statutory guarantee that any necessary cross-subsidies from urban to rural will not be disallowed (or invoke sanctions from) the Commerce Commission or any regulatory authority
- A fairer formula is used for determining the asset value of uneconomic lines
- A tidying up of access rights for servicing lines
- Grandfathering of lines existing at 1 April 1993 to avoid a proliferation of challenges as to whether these lines were lawfully installed.
Network Waitaki
Extension could be made until the guarantee period of any RERC subsidy had expired. This would ensure that full payback has been achieved and the subsidised supply has the same economic status as any other supply.
Marlborough DC
20 years provided that systems are in place to allow lines companies to assist customers into alternatives.
Option F: Continuance of supply, using lines or alternatives, with no expiry date but subsidy is from all electricity users
The subsidy required to maintain connections on uneconomic lines is recovered from all electricity users.
Power Systems
Subsidising the cost across all taxpayers may offer a smaller over-all increase.
CN and VCW Thornley
Support this option. Price of alternatives similar to that of grid connected consumers.
National Institute of Water and Atmospheric Research (NIWA)
Spreading of subsidy burden over all grid-connected consumers instead of those in line area appears "fair". Most favourable option.
David MacClement
Remote consumers should not be left without any pressure to change their energy supply should take responsibility for own choices and the unfairness of being little benefit to public supplying large subsidies.
Sustainable Energy Association NZ
Supports, with extension that a line charge subsidy or remote energy supply payment directly to the consumer who could decide how to use it.
Major Electricity Users Group
This should not be further considered. Subsides are appropriate where an identifiable market failure needs fixing and there are no other lower cost options available. The policy issue with s62 is not about market failure, it's about equity.
Mighty River Power
Oppose. Substantial costs in administering the scheme. At present, subsidies are internalised in each electricity lines business area.
Genesis Energy
Option F provides only weak incentives for lines companies to find the least cost means of continued supply to remote consumers. The worst of all solutions, of most consequence to networks with little or no rural customers. Would remove accountability for the costs of maintaining the pre-1993 rural connections, and add administration costs to each company.
Far North District Council
Supported.
Local Government NZ
Supported.
Rural Women of NZ
Oppose this option. Hinders the development of alternatives, contains no requirement for notice or assistance and opposed to unnecessary government spending.
Federated Farmers
This option should be further considered. Would mean the cost are spread over a larger base of consumers and would be a useful way to implement option A or B.
Winston Oliver
Support this option. Socialised costs are a fact of life in NZ.
Eastland Network
Option would entail significant costs for Government in setting up, consumers who may be exposed to increased charges, lines companies with extra administrative requirements while maintaining supply responsibility. Introduction of another regulatory scheme would likely imply an extra burden which especially smaller lines businesses might find hard to carry.
Marlborough Lines
Option would entail establishment of a further quasi-government organisation such as the previous RERC. Costs of that organisation would inevitably be passed on to electricity consumers. Also concerns regarding methodology that would need to be devised to establish need for and quantum of subsidies. Concerned that administrative costs involved would make this option unattractive.
Top Energy
Social disruption from allowing the section to end is clearly untenable. This being the case the cost of continuing to supply uneconomic connections must fall on the whole community either via government support or an industry levy.
Counties Power
Do not support.
Top Energy Consumer Trust
Connection between original requirement to build uneconomic lines (funded by RERC) to the continued existence of those lines which require ongoing maintenance and will, in due course, require rebuilding. Therefore operation and rebuilding of these assets should be funded in the same way that the original assets were funded.
Waitaki Power Trust
Recommends option eliminated from serious consideration. RERC scheme provided subsidy toward capital costs of providing reticulation asset. It would be an extremely different subsidy to provide ongoing subsidies, and that must be avoided at all costs. Additional administrative time and expense high.
Eastern Bay Energy Trust
Does not support.
Contact Energy
Strongly disagrees, as bureaucratic and compliance costs associated with a levy likely to far outweigh any benefit. Parallel with TSO levy on telecommunications companies. Commerce Commission has expended a significant amount of resources and taken considerable time to administer the TSO. Contact is of the view this should not take place in the electricity industry.
Environment Waikato
Option F given the highest ranking – achieve subsidy by extension of levy administered by EC.
Marlborough DC
A central bureaucracy to administer the cost per ICP would be unwieldy and expensive; the extent of the problem needs to be discovered first.
Southland DC
Support.
Ruapehu DC
Preferred option.
Option F Questions
What issues are there with creating and employing a different subsidy mechanism in order to socialise the costs across all electricity users?
New Zealand Police
Need to know what uneconomic means and exactly how much each site is being subsidised by.
Ontrack
Need to know what uneconomic means and exactly how much each site is being subsidised by.
TelstraClear
Need to know what uneconomic means and exactly how much each site is being subsidised by.
JDA & Associates
Need to know what uneconomic means and exactly how much each site is being subsidised by.
Vodafone
Need to know what uneconomic means and exactly how much each site is being subsidised by.
Rural Women of NZ
Likely that consumers receiving heavily subsidised electricity would lose control over the type and quality of their service.
Marlborough Lines
Costs and complexities would be an economically inefficient way of dealing with the current problem. Costs and potential problems would outweigh benefits.
Top Energy
3 possible approaches to this solution:
- Allowing introduction of geographically based tariffs, so all consumers pay an amount that provides an economic return to the lines business. Practical implementation is fraught with equity difficulties. A regime would require a transfer payment to consumer to allow them to pay higher prices. Most likely mechanism would be through social welfare system.
- Maintenance of single tariffs to consumer with an uneconomic "top up" paid to the lines business. This could be made by government via cash payments, tax concessions or other payment systems.
- Maintenance of single tariffs to consumers with an uneconomic "top up" paid to the lines business. This payment could be from an industry operated pool of funds, similar to the RERC programme.
In options 2 and 3, method of supply should be the option of the lines company. This would then start developing the market for alternative supplies.
Orion
Costs and complexities mean this would be an economically inefficient way of dealing with the current problem. Cost and potential problems would far outweigh benefits.
Collective submission - 18 lines companies
Different scenarios across the country complicate reaching one size fits all solution. There appears to be a role for central government in maintaining minimum living standards in remote rural areas, and through the welfare system, supporting low income households in meeting the costs of their supply. This will enable ELBs to maintain a level of cross-subsidy which is acceptable to the local community and avoids the need for an industry-wide subsidy, which in our view could become administratively complex and contradict solutions already implemented and supported by local communities.
Top Energy Consumer Trust
Acknowledged that there will be increased costs to lines businesses and the industry as a regime is developed to manage this scenario. However, the ODV valuation methodology and other information gathering and disclosure requirements imposed by the Commerce Commission under their various programmes mean that much of the data will already be available.
Electricity Networks Association
ENA notes any benefits of section 62 are shared by energy suppliers but the lines companies bear the financial risk and the direct costs since the separation of lines and retail businesses under EIRA.
Proposed option is somewhat like the re-creation of the old RERC. Arguably the RERC regime contributed significantly to the problem by providing a larger pool for bigger subsidies to remote consumers – which excluded associated costs to maintain.
ENA considers a similar levy concept will distort the economics of line supply and remove incentives to include alternatives even though it might help to provide better returns for rural lines companies. However, if the threshold regulatory regime remains in place, a mix of alternatives should be further considered to deal with the effects of any continuation of section 62.
Vector
A more centralised subsidy funding mechanism (using either a levy or tax funded subsidies) would better meet the objectives for ensuring competition in both alternatives and new subdivisions without creating other distortions or administrative costs (e.g. Universal Service obligations, or exclusive franchise areas) It would also minimise complexity of the part 4A regime in dealing with how alternatives should be treated, when they are effectively performing the role of distribution assets.
Would involve new administration costs, so important to establish the order magnitude of the likely overall subsidies to be paid, in determining the cost effectiveness of this option.
Powerco
Transaction costs in designing, collecting and distributing a levy.
Potential increase in average electricity/energy costs.
Network Waitaki
The issues with subsidised supply are that the users of Line Function Services are subsidising the entire alternative supply.
Subsidies are artificially based on energy volumes not the cost of the services being provided.
There is not a prescribed and consistent pricing methodology that is based on policies and objectives.
Meridian
Insufficient information about the potential level of the existing subsidy to rural electricity consumers on which to comment on the proposed levy. If a levy was introduced we submit that the treatment of these lines in the threshold regime would have to be amended. A levy regime would also be a markedly different and transparent treatment of pre-1993 lines compared with lines installed since 1993.
Other Options
Any additional options suggested.
National Institutive of Water and Atmosphere (NIWA)
Continuation of energy services with a subsidy, where consumer consent is required prior to lines alternatives being developed and introduced. Propose that the subsidy be operated under an open tender system by the EC.
Marlborough Lines
Option B, but with addition of the right for lines companies to require contributions from consumers connected to a line to meet the cost of any significant renewal or replacement of the assets as they reach the end of their useful life.
If consumers elect to take supply by alternative means rather than meeting contribution required by lines company, they would accept responsibility for provision and ongoing maintenance of alternatives.
Safeguards should be built in e.g. consumers not asked to contribute more than once in any e.g. 20 year period, rules developed for type of work that lines companies could seek contribution for.
To protect lines company interests, lines companies would have the right to disconnect consumers who failed to respond, or who, after agreeing to meet the levy, then failed to make payment in a timely manner. Also, in the event a material number of consumers on a line elect to install alternatives, such that renewal/replacement was not viable, the lines company could on giving reasonable notice, advise all consumers that line function services would no longer be available.
The Lines Company
Policy is established for the nation to fund supply to remote areas, where in the national interest.
Working party be established to work through details of policy and review legislation and regulation concerning remote supply to ensure is consistent with policy.
Orion
Doesn't advocate particular option - If Government proceeds with an option that requires lines companies to maintain supply should:
- Provide for this to be maintained by line or alternatives.
- If via a line, make provision for lines companies to require capital contribution where renew/rebuild needed.
- Encourage Commerce Commission to allow commercial return on assets employed without expiry.
- Remove S99 of GPS.
If proceeding with an option that removes obligation to supply:
- Provide certainty with reasonable notice period (e.g. 3 years).
- See bullets 2-4 above.
Collective submission - 18 lines companies
Preferred option similar, but not same as option B:
- Should consumer wish to change to alternative, ELB must assist with transition but under no obligation to provide alternative supply option.
- ELBs must have fair and reasonable access to lines located on private property.
- ELBs able to recover costs of supply from all consumers in a manner consistent with published pricing methodologies which must be compliant with relevant legislation. (E.g. could seek capital contributions, or differentiate prices to different consumer groups).
Electricity Networks Association
Of concern to ENA is that the review does not appear to have considered whether or not the obligation under section 62 should be allowed to expire in 2013 in accordance with the current intent and wording of the Act, without imposing other statutory obligations.
Electricity Networks Association
If outcome of working group review is that S62 obligation should be extended, ENA believes it is crucial it is only extended for a limited time period, and that problems with implementation are addressed. In particular:
- A statutory guarantee that any necessary cross-subsidies from urban to rural will not be disallowed (or invoke sanctions from) the Commerce Commission or any regulatory authority.
- A fairer formula is used for determining the asset value of uneconomic lines.
- A tidying up of access rights for servicing lines.
- Grandfathering of lines existing at 1 April 1993 to avoid a proliferation of challenges as to whether these lines were lawfully installed.
Powerco
The introduction of new technologies requires at least a level playing field for all forms of investment. If one accepts there are social equity issues in ensuring the electricity needs of remote communities are met, a solution needs to be found which supports the delivery of a sustainable low emissions energy future through integrated.
Energy solutions using new technology and meets energy needs in an affordable manner.
In Powerco's view this is most likely to be achieved through a managed transition to a market environment and would ideally involve:
Redefining the service obligation to refer to the delivery of energy services for all consumers with no reference to the means of delivery or a legacy class of consumers.
Applying a regulated national subsidy reflecting the social benefits of affordable energy solutions for all. Such a subsidy would be administered by a neutral body (not the lines business to avoid potential conflict of interest if the lines business was a merchant investor in such energy solutions).
Establishing the incumbent lines business as the monopoly investor of last resort where the available subsidy is insufficient to discover market solutions. This role would be subject to different regulation from the Commerce Act given that it would not necessarily be met through lines.
Meridian
Whatever changes are made, submits rural consumers must be engaged in discussions regarding the level of service or reliability they would receive or be prepared to pay for.
In addition, decisions from the review must be notified to rural consumers and Meridian suggests at least 3 years notice be provided of any change to arrangements for LFS supply. We submit that this notification should be annual from 2009 to minimise the risk of consumers not being informed of changes.
Tararua District Council
Supply continues beyond 2013, lines or alternatives, no expiry data; cross subsidisation has central element; incentives provided to encourage a change to alternatives; local solutions for local problems.
Genesis Energy
Better solution lies in-between options c, d and e (removing the obligation to supply that is economically sound) and encouraging the consideration of a, b and f (which deliver on the policy outcome). Option features 1. let full cost flow through to rural consumers 2. transition period for this to occur 3. Development of a targeted affordability safety-net once the full price of access is transparent. Extend obligation but allow for lines companies to adjust up the price; this would facilitate the entry of alternative suppliers. The choice for Government is whether or not it considers the benefits to be gained from the encouragement of investment and the better utilisation of resources outweighs the possible detriments associated with affordability. Other policies recognise that cost impacts can be mitigated e.g. emissions trading.
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