• Home
• Energy & Resources
• Electricity
• Archive
• Electricity Reform
• ERTU Final Reports
• Final Certification Report
• 1. Introduction

• Electricity

• Archive

• Electricity Reform

• ERTU Final Reports

• 1.1 Background
• 1.2 The Government's Objective
• 1.3 ERTU's Role
• 1.4 ERTU's Interim Certification Report
• 1.5 Appointment of Interim Development Groups
• 1.6 Structure of this Report
• 1.7 Assumptions of ERTU
• 1.8 Nature of ERTU's Assurance

1.1 Background

On 7 April 1998, the Electricity Reform Transition Unit ("ERTU"), comprising Messrs. Tim Saunders (Chair), Doug Heffernan and Brent Wheeler, was appointed. ERTU's terms of reference required it to carry out the tasks referred to in Part B of the document dated 7 April 1998 containing the Government's electricity reform package (the "Reform Package"). These tasks involved analysing the consequences of, and developing arrangements for, splitting ECNZ into three competing State-owned enterprises ("SOEs").

The three SOEs are Waikato SOE(the Waikato Hydro System), Huntly SOE(Huntly and the Tongariro System) and South Island SOE(Manapouri and Waitaki Hydro Systems).

1.2 The Government's Objective

The Reform Package describes the Government's objective as being to promote effective competition in the New Zealand generation market by restructuring ECNZ into three competing SOEs which are:

• commercially viable entities; and
• effective competitors.

1.3 ERTU's Role

ERTU's terms of reference required it to develop, in consultation and (if possible) agreement with ECNZ, an implementation plan with key steps and strategies for achieving the split of ECNZ, and to drive the implementation processes of the restructuring. ERTU's work programme was amended to enable it to perform a rigorous analysis before the Government decided whether or not to proceed with the establishment of development groups to advise on the specific establishment of each SOE.

1.4 ERTU's Interim Certification Report

On 1 September 1998 ERTU provided its Interim Certification Report to Government. That Report set out ERTU's initial conclusions, namely that:

• the restructuring of ECNZ into three SOEs is achievable;
• the three SOEs will be commercially viable entities;
• the three SOEs will be effective competitors;

in each case within the principles and parameters set out in the Reform Package.

ERTU also prepared, and delivered to Government with its Interim Certification Report:

• a Transaction Structure Report which provided an overview and summary of ERTU's recommendations in relation to the split of ECNZ;
• an Implementation Plan which described the steps, processes and timetable recommended by ERTU in order to implement the split; and
• Terms of Reference for the Interim Development Groups ("IDGs") for each of the proposed new SOEs.

These reports were supported by a Legal Transfer Report, a Market Analysis Report and a Financial Analysis Report.

1.5 Appointment of Interim Development Groups

On 15 September 1998, and after considering ERTU's Interim Certification Report, Government decided to proceed to the next stage of the reform process, namely the appointment of an IDG for each of the proposed new SOEs. The Terms of Reference of these IDGs require them to represent the interests of each new SOE until that SOE is formally established with its own Board and management.

Part of ERTU's role has been to assist the IDGs with their analysis and their negotiations with ECNZ, and to ensure their progress was in line with the timetable set out by ERTU in its Implementation Plan.

As required by their respective Terms of Reference, the IDGs will also be providing their certification reports to Government on 1 December 1998. Those reports discuss the financial viability of each SOE and their ability to compete in the new market environment and proposed establishment plans.

1.6 Structure of this Report

This Final Certification Report has been prepared pursuant to ERTU's terms of reference (as amended). It contains ERTU's final conclusions on whether or not:

• the restructuring of ECNZ into three SOEs is achievable;
• the three SOEs will be commercially viable entities;
• the three SOEs will be effective competitors,

in each case within the principles and parameters set out in the Reform Package.

ERTU has also prepared, and will deliver to Government with this Final Certification Report:

• an ECNZ Split Market Impact Report which outlines ERTU's views on the likely market outcomes and whether there are any environmental issues and security of supply issues that may affect, or result from, the split;
• a Transaction Overview Report which provides an overview and summary of certain key aspects of the split; and
• a Report on IDG Certification which summarises and comments on the reports submitted by the IDGs.

These reports are supported by Analysis Update Reports on marketanalysis, the environment and security of supply issues, a Final Financial ViabilityReport, a FinalLegal Transfer Report, and the ECNZResidual Business Plan. These reports form the basis of the conclusions contained in, and should be read in conjunction with this Final Certification Report.

The following diagram summarises the structure of and inter-linkages between ERTU's reports:

1.7 Assumptions of ERTU

In forming the opinions set out in this Final Certification Report ERTU has assumed that:

• the structure in the Transaction Overview Report will be adopted;
• the steps, processes and timetable described in the FinalImplementation Plan appended to the Transaction Overview Report will be followed;
• information supplied to it by ECNZ is complete, correct and not misleading in any material respect. The final letter of representation from ECNZ in this regard as to the adequacy and accuracy of information provided by ECNZ is described in the FinalLegal Transfer Report;
• the new SOEs will be implemented in accordance with the plans presented by the IDGs; and
• the ECNZ Residual Business Plan will be implemented in all material respects.

ERTU has made the following assumptions about the environment in which the three new SOEs will operate, namely:

• the existing regulatory regime will remain essentially unchanged; and
• a wholesale electricity market substantially similar to the existing New Zealand Electricity Market (NZEM) will be available and the new SOEs will participate in that market.

The new SOEs will take over the assets and liabilities on an "as is where is" net book value basis. Accordingly, in establishing the arrangements for transferring ECNZ's assets and liabilities to the new SOEs, ERTU proposes that the new SOEs will not receive any warranties or indemnities from ECNZ about the nature, condition, suitability or fair value of the assets and liabilities transferred.

1.8 Nature of ERTU's Assurance

ERTU:

• has endeavoured to ensure the accuracy and completeness of the material relied upon in providing this Final Certification Report and its other reports;
• has confidence in its views and conclusions expressed in this Final Certification Report, and is aware that the Government may act in reliance upon them; but
• does not accept legal liability for errors or omissions in this Final Certification Report or for any consequences of reliance on ERTU's conclusions.