2. Regulatory Framework
The Electricity Industry Reform Act 1998 required full ownership separation between lines (distribution and transmission) and supply (generation and retail) businesses.
The main reasons for the separation were to encourage competition in generation and retailing and to help prevent cross-subsidisation of generation and retailing from lines customers.
These cross-ownership restrictions have been relaxed twice since 1999 to allow lines businesses to own some generation and to sell the output from those stations. In particular:
- Under the Electricity Industry Reform Amendment Act 2001 lines companies are allowed to:
- Own and sell the output of new renewables generation (such as wind) without restriction. This generation must be held in a legal entity separate from the lines business and be operated at arms-length to it (corporate separation and arms-length trading rules); and
- Own generation up to the higher of 5 MW or 2 percent of their peak load.
- The Electricity Industry Reform Amendment 2004 further relaxed the limits by allowing the lines companies to own:
- Generation commissioned after 20 May 2003 up to the higher of 50 MW or 20 percent of their peak load (with all capacity above 5 MW or 2 percent of load subject to corporate separation and the arms-length rules); and
- Reserve generation contracted to the Electricity Commission without limit.
Thus, lines companies are permitted to build new generation within the specified limits. This includes, since 2001, investment in new renewables without quantity restrictions. Lines companies are also allowed to sell the output of their generation without any legal constraints.
The majority of lines companies have yet to take advantage of these opportunities.
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