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13 June 2000

• Wholesale Market
• Transmission
• Distribution
• Retail
• Energy Efficiency/Sustainability and the Environment

Wholesale Market

1. the governance framework for the physical wholesale market should be strengthened and made mandatory, with mechanisms to ensure that:
• the views of all stakeholders, including consumers, are taken into account;
• competition is enhanced wherever possible, and where it isn't possible, that outcomes mirror those that would arise if the market were competitive; and
• demand side participation is enhanced;
2. the current governance bodies (NZEM¹, MARIA² and MACQs³) should be replaced by a new single market structure with the following key features:
• the board of the structure should be elected by stakeholders and comprise a majority of members independent of the industry;
• membership of this structure should be compulsory for generators, distributors, retailers and Transpower;
• the structure should operate under Government-agreed guiding principles and include robust mechanisms for self-regulation; and
• service provision to the market should be contestable;
3. the Government should invite the industry to put these new arrangements in place within 12 months; if industry participants fail to commit to the required work, the Government should then legislate for regulatory powers to put the structure in place;
4. once the new structure is in place, adoption of a real time wholesale market should be progressed as a priority;
5. the market system operator should publish projections of system adequacy;

Transmission

6. Transpower's principal objectives should be to achieve a reasonable and transparent balance between a fair return to the taxpayer and energy policy objectives (including efficiency);
7. Transpower's specific objectives should include:
• providing services agreed with users;
• making its services contestable wherever possible;
• pricing its services in line with principles determined by the Government, and, subject to those principles, according to a pricing methodology determined by the market on the basis of user-pays wherever possible;
• pricing of new and replacement investment to provide:
• grid users with strong incentives to identify least-cost investment options, including energy efficiency and demand management options; and
• clear location signals;
• allocating sunk costs in a way that minimises distortions to the use of new and existing grid assets;
8. transmission charges should be enforceable on the same basis as other market rules;
9. Transpower should be required to ensure that minimum standards to deal with grid constraints are met;

Distribution

10. the Commerce Commission should:
• be responsible for the content and enforcement of the information disclosure regulations and analysis of line company performance;
• require recalculation of asset values and mandate future asset valuation methodologies;
• be empowered to impose price control on individual distribution companies (and Transpower) for a maximum of five years; and
• be given responsibility for developing criteria and thresholds upon which price control should be imposed;
11. the Commerce Act should be amended to permit the imposition of CPI-x price control;
12. distribution companies that are majority owned by trusts and local bodies should be required to have their statements of corporate intent modelled on Transpower's;
13. distribution companies that are majority owned by trusts should be subject to the Local Government Official Information Act, the Public Finance Act and the Ombudsman Act;

Retail

14. protocols for switching consumers should be enforced by the new market board;
15. the Government should invite the industry to establish an Electricity Ombudsman Scheme to apply to retail and distribution companies, including provision for the application of fines on companies and compensation for consumers;
16. the Government should allow the industry six months to establish the Scheme, after which the Government should look for other options to ensure that the industry has an appropriate focus;
17. use of system agreements that take account of retailers' interests should be developed by the industry;
18. arrangements should be introduced for consumers whose retailer becomes insolvent to be supplied by the "incumbent" retailer;
19. the Government should require retailers to supply pre-paid meters at reasonable cost;

Energy Efficiency/Sustainability and the Environment

20. fixed charges should comprise no more than about 25 per cent of the typical household's electricity bill;
21. the Energy Efficiency and Conservation Authority should monitor fixed charges and refer the matter to the Commerce Commission if this percentage is exceeded; and
22. transmission charges should be amended to promote co-generation.

¹New Zealand Electricity Market, the multilateral agreement under which most wholesale electricity is bought by retailers and sold by generators on a half-hourly basis.

²Metering and Reconciliation Information Agreement, which outlines the rules that allow a buyer and seller to form a contract to supply electricity.

³The new Multilateral Agreement on Common Quality Standards, which aims to transfer responsibility for transmission supply quality to the industry (this responsibility currently lies with Transpower).