Energy Competition Task Force Set Up To Improve Electricity Market Performance

The Electricity Authority Te Mana Hiko and the Commerce Commission Te Komihana Tauhokohoko have established an Energy Competition Task Force to develop a series of short- and medium-term actions to improve the performance of electricity markets. The Ministry of Business, Innovation and Employment (MBIE) is also involved in the Task Force as an observer.

The Task Force brings together government market regulators to consider the complex factors underlying wholesale prices and put in place a suite of measures to help address the current issues across the energy system.

The Task Force has already met and is considering two key outcomes:

1. Enable new generators and independent retailers to enter, and better compete in the market. This may include:

• requiring gentailers to contract with independents more and in new ways, both in relation to firming new generation and to manage risks around high electricity prices. This would also assist New Zealand’s large industrials to make longer-term operational decisions.
• investigating a sequence of regulatory options that could be promptly deployed if other interventions are not effective. This would include considering the pros and cons of level playing field measures used in other countries, such as non-discrimination requirements for gentailers to not treat others in the market differently from their own business.

2. Provide more options for end-users of electricity, such as:

• requiring retailers to buy power from end-users on fair terms
• requiring distributors to offer rebates to end-users with flexible demand when that benefits the electricity system
• ensuring large users (industrials) are rewarded for the benefit their flexible demand provides to the system.

Electricity Authority Board Chair, Anna Kominik, says there are regulatory levers that can be used to ensure independent generators and retailers are better able to compete in the market and encourage more investment in new generation.

"Bringing more generation online sooner puts more electricity into the system, which is the best way to protect New Zealanders from fuel shortages in the future. The Authority is already working on a number of regulatory measures to encourage more competition in the market and manage the electricity price risks. The Task Force wants to accelerate these benefits. It will also consider other action we and the Commission, can take. Ultimately, we are looking for ways to strengthen the market and put downward pressure on prices, making sure consumers get a better deal," she said.

The current spot market prices and volatility is primarily related to low hydro lake levels and gas shortages, meaning the whole system is short of fuel to generate electricity at a time of high winter demand.

We will work with the sector to ensure there is adequate thermal supply for firming and peaks.

Chair of the Commerce Commission, Dr John Small, said the Commission will be working alongside the Electricity Authority in improving the performance of energy markets for the long-term benefit of Kiwi consumers.

"This can be achieved through better contracting arrangements that are likely to promote competition through the electricity supply chain, and by empowering end-users of electricity so they’re better able to manage their electricity use and costs.

"We need to make it easier for end-users to manage their own affairs, including by generating their own electricity. We’re taking a hard look at the market settings to ensure consumers have options like time of use tariffs and that there are appropriate rewards for providing demand flexibility at times when supply is tight."

The Task Force’s final recommendations will go to the boards of the Commission and Authority for final decisions. Any options for changes to market settings or regulations will follow normal consultation processes.

MBIE’s deputy secretary Building, Resources and Markets, Paul Stocks, said the Task Force was an important component of responding to the current energy situation.

"It’s vital for New Zealand’s economic health that we have the electricity market operating well and settings that enable more competition and new investment. Having the regulators work together like this, alongside MBIE, means we can make sure the full range of levers are considered, and they operate in a complementary manner," he said.

The Terms of Reference for the Task Force can be read here: https://img.scoop.co.nz/media/pdfs/2408/Terms_of_reference_for_Commission_and_Authority_Energy_Competition_Task_Force.pdf

Notes:

Market measures are already underway. We have:

• established an energy margins dashboard that allows people to see the energy margins generators are making when selling into the wholesale electricity market.
• requested information on thermal fuel costs for publishing
• worked with Transpower to release more contingent storage, which enables more generation (without breaching resource consents)
• accelerated our Risk Management Review, which is looking whether there are barriers to retailers and large customers getting hedge cover and long-term supply agreements.
• started to design a standardized flex product, which will give retailers another risk management tool.
• published an investment data dashboard, with requests for further information.

The Authority already monitors market behaviour and performance, but is requiring companies to provide more information to assist with this work.

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