14/09/2021·3 mins to read
Greater regulation of electricity distributors on the way
The Electricity Industry Amendment Bill was introduced to Parliament on 9 September.
The Bill implements some of the recommendations in the Electricity Price Review panel’s 2019 final report, which are aimed at improving outcomes for electricity consumers. Most of the changes were signalled in the report and the Cabinet paper that followed it, and not all of them will be welcome news for distributors.
What you need to know
The Bill amends the Electricity Industry Act 2010 (Act) to remove impediments to the Electricity Authority’s (Authority’s) power to impose quality and information requirements on distributors through the Electricity Industry Participation Code 2010 (Code).
The Bill expands the Authority’s jurisdiction to make rules about distributors’ (and Transpower’s) involvement in contestable markets, and moves most of the current cross-involvement rules from the Act to the Code.
- The Bill adds another limb to the Authority’s statutory objective to protect the interests of small consumers and creates a Small Electricity Consumers Agency.
Quality and information requirements
In 2019 the Court of Appeal clarified that the template default distribution agreement now in Part 12A of the Code cannot contain mandatory quality standards for distributors. This is because the Commerce Commission regulates distributor quality under Part 4 of the Commerce Act 1986 and section 32(2)(b) of the Act says the Code cannot regulate anything the Commerce Commission regulates under that Part except pricing methodologies for Transpower and distributors and quality standards for Transpower only. This is why, for example, schedule 1 of the template does not contain mandatory service standards for interruptions or power quality.
The Bill amends the Act to allow the Code to set quality or information requirements for distributors, including by prescribing default terms and conditions for distribution agreements. The Bill also clarifies that default terms and conditions for distribution agreements cannot be modified by agreement between the parties except as permitted in the Code.
As the explanatory note to the Bill puts it, “The Bill will enable the Code to regulate distribution access terms and conditions as it already does for transmission.”
Rules for involvement in contestable markets
The Bill transplants most of the rules in Part 3 of the Act restricting distributors’ cross-involvement with retail and generation to a new Part 6A of the Code. At the same time, the Bill allows the Code to include rules “for the purpose of restricting relationships between 2 classes of industry participants, where those relationships may not otherwise be at arms-length.”
The combined effect is that the Authority, through the Code, will be able to amend and add to the current rules about separation of distribution businesses from other businesses, including generation and retail. The explanatory note to the Bill says this “will give the Authority jurisdiction to develop proportionate and targeted rules to address any competition-related problems arising from Transpower’s or distributors’ involvements in other contestable markets if and when they emerge.” Evolving distributed energy markets, both supply and demand-side, may become the subject of such new rules in future.
Breaches of the rules will cease to be breaches of the Act and will become Code breaches instead. An upside for distributors and their directors is that this will result in a substantial reduction in the maximum pecuniary penalty for a breach - down from $500k for an individual and $10m (or more) for a body corporate for breach of the Act to $200k for breach of the Code.
Small consumer protection
The Bill makes the Authority’s current competition, reliability and efficiency statutory objective the Authority’s “main objective” and says an “additional objective” of the Authority is “to protect the interests of domestic consumers and small business consumers in relation to the supply of electricity to those consumers.” The Bill also amends the Act to allow the Code to contain rules for this purpose.
The explanatory note says the additional objective is necessary because sometimes protecting small consumers in their dealings with industry participants may not be consistent with the Authority’s main objective. The new statutory objective will open the door for targeted small consumer interventions by the Authority. The much derided low fixed charge tariff regulations demonstrate how such interventions, made with good intentions, can have unintended results.
In the same vein, the Bill creates a Small Electricity Consumers Agency with the function of representing and advocating for the interests of domestic consumers and small business consumers in the electricity industry. All or some of the costs of the Agency may be recovered through industry levies. In our view, consumer-owned distributors would have a valid argument they should not be required to contribute.
The Bill makes several other changes to the Act. The other changes include:
giving the Authority the power to include conditions in individual Code exemptions. This is likely to make Code exemptions a more flexible and useful tool;
expands the Authority’s powers to obtain information from industry participants and enables the Authority to share the information with other public service agencies and statutory entities. The new information sharing power is broad - for example, a statutory entity is any entity listed in Schedule 1 of the Crown Entities Act 2004; and
- enabling the Minister to step in and amend the Code if she is not satisfied with progress on certain matters, including requirements for distributors to offer retailers standard terms for network access.
 Vector Limited v Electricity Authority  NZCA 49.
 The Commerce Commission also regulates distributor information disclosure under Part 4 of the Commerce Act 1986.
 The prohibition on cross-involvement in distribution and grid-connected generation in excess of 250 MW will stay in the Act.
 A “small business consumer” is a business consumer that consumes less than 40 MWh per year.