Questions and Answers
[ Last Updated 21 November 2005 ]
Do the Government's Decisions Follow the Inquiry Recommendations?
Yes. The Government agrees with the Inquiry's approach of enhancing self-regulatory arrangements in the electricity industry. The Inquiry's recommendations have been accepted, either directly or in a modified form.
Successive Governments Have Put Through Reforms to the Electricity Industry. Is This Going to Be the Finish?
The Power Package is the first strategic and comprehensive approach to electricity reform.
One of the strengths of the Government's approach is that the self-regulatory framework provides the flexibility for the industry to keep up with future changes and advances in technology.
However the world doesn't stand still - there are enormous changes in technology transforming this and other utility industries. Government policies now and in the future must anticipate and respond to those developments.
Will the Package Mean Lower Prices?
It is not possible to predict the effect on prices with confidence. There are too many variables, including future electricity demand, technological developments and the weather.
But the Power Package will bring more fairness and transparency to power prices. Consumers will be able to have more confidence they are getting value for their money. And the new requirement for a low fixed charge tariff will increase the ability of small consumers to get their power bill down.
Will Delays in Consumer Switching Between Retailers Stop?
It is clear that the systems for switching consumers that retail companies have in place must improve. The new Governance Board will be responsible for ensuring this happens and will have continued power to impose fines if appropriate. If this doesn't work, the Government will regulate.
When Will the "Ombudsman" Office Be Operating?
The Government has made it clear that it expects early progress.
The industry, working with the Ministry of Consumer Affairs, must agree the overall features and design of the consumer complaints resolution system, including the rules and terms of reference, and have commenced the recruitment procedures by early next year.
Why Do We Need a Price Control Regime?
The Inquiry report noted that electricity distribution (line) companies are effectively monopolies, since there is little choice for consumers. Accordingly there are fewer incentives on these companies to minimise costs and fewer constraints on the level of profits they can earn, compared to companies that operate in competitive markets. The need to regulate monopolies is widely accepted in developed economies.
Will the Commerce Commission Have Sufficient Resources to Do the Job Properly?
Yes. A regulation-making power is being introduced to enable a levy to be imposed on electricity lines businesses to resource the Commerce Commission.
Will the Lines / Energy Company Split Remain in Force?
Yes. The ownership split of lines and energy businesses is more or less irreversible. However, the Government is introducing flexibility into the system. Legislation will be amended so that distribution lines companies can invest in generation assets within their network where this is an economically efficient alternative to investment in network assets. The Government expects that this will promote investment in innovative small scale generation, including in co-generation and renewables.
Are Any Changes Required to Electricity Company Ownership?
No changes are being made or are required in respect of electricity company ownership, but some flexibility has been introduced.
Legislation will be amended to allow electricity trusts which own line companies to form "mirror" trusts to build or buy generation, buy an existing retail business and/or begin competing for retail business.
This decision is designed to enable local communities unhappy with existing retailers to re-establish a trust to retail electricity.
Are There Any Changes to Meter Ownership?
No. The Inquiry investigated the issue of meter ownership and proposed no change. The Government has agreed with this recommendation and expects that the switching protocol governing all relevant parties will resolve any competitive issues regarding meter ownership.
What's in This Announcement for the Environment?
The Power Package initiatives will promote demand management and ensure wise investment in electricity assets. Limiting fixed charges will promote energy efficiency. The electricity industry will have the flexibility to make use of new technologies which bring environmental benefits. The new arrangements are compatible with the Government's obligations on climate change under the Kyoto agreement.
For further information, please see the document "Power Package - Power to the Environment".
What Impact Do the Policies Have on Rural Consumers?
Rural consumers are entitled to receive a reliable and affordable supply of electricity. The Government Policy Statement endorses moves by distribution lines companies to keep changes in rural lines charges in line with urban line charges. The Government will monitor rural charges closely.
What Does the Announcement Mean for Business Consumers?
Commercial and industrial consumers will be assisted by arrangements in the electricity industry that ensure that electricity is delivered reliably and at least cost. The Government's response to the Inquiry will ensure that the electricity industry delivers these outcomes.
Why Are Fixed Charges Not Being Banned Completely?
The Government recognises that it is economically efficient to recover some line business costs via a fixed charge.
A move to removing fixed charges altogether would penalise large consumers - for example, extended families on low incomes - while benefiting working couples with no dependants.
The fairest option was to introduce choice for consumers, and the Government has done this by requiring retailers to offer at least one tariff with a low fixed charge.
When Will All These Changes Take Place?
The Government expects the industry to move quickly to put in place the governance structure and other Government decisions. Two monthly progress reports are required, with the first due in December 2000. A specific report is due in February 2001 on progress in establishing the Governance Board that meets the Government's design principles. The Government will closely monitor industry progress and will have the power to regulate if required.
When Will the Legislation Be Passed?
The legislation will be introduced before the end of the year, and will be passed as soon as possible next year.
The Government Expects the Industry to Implement Most of These Decisions - Is This Going to Work?
If the industry doesn't get it right, the Government will regulate. And the industry doesn't want that to happen. The industry has already begun to move in response to the Caygill Inquiry and the Government is confident the threat of back-up regulation will bring further results.
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