July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Electric Competition in New Zealand: Putting Last Things First
First it deregulated generation.
Then distribution (no more exclusive franchise).
Only now is New Zealand turning
to the wholesale market.
A decade ago New Zealand's economy was suffering from prolonged stagnation. The country relied too much on the public sector. In 1987, before the first reform efforts began, New Zealand's electricity industry (em with its generation and transmission monopolies (em was owned and operated by the central government. Ownership and operation of distribution fell to local governmental organizations, such as the Auckland Electric Power Board (now Mercury Energy).
Today, however, under a system of light-handed regulation proposed and carried out under two different political parties (Labour and National), New Zealand maintains no explicit price controls for either the competitive or the natural monopoly segments of the electricity industry.
How did New Zealand get from there to here?
Since 1987 the New Zealand electricity industry has undertaken many major reforms. The process began in April 1987 with the formation of the Electricity Corporation of New Zealand (ECNZ) from the Ministry of Energy's government monopoly in electric generation and transmission. Over the next 10 years, the reforms led to deregulation of the generation and retailing sectors, plus the introduction of the so-called "light-handed" regulatory framework. The next important step will occur on October 1, 1996, with the introduction of an open, competitive wholesale electricity market. (See sidebar, "Industry Milestones.")
While this process was taking place (deregulation, reform, and privatization), the industry was also consolidating. In 1995 only 41 electric energy companies made regulatory disclosures. That total marked a decline from 44 electric energy companies in 1994, 49 companies in 1992, and 61 companies in 1986. The consolidation has occurred largely through mergers and takeovers among domestic distributors.
In addition, investment has come in from outside the New Zealand electricity industry. For example, Fletcher Challenge Ltd., a New Zealand-based multinational natural resources company, has invested as a minority stakeholder in the distribution and generation sectors. UtiliCorp United now owns a large share of Power New Zealand (the country's second-largest distribution company) and has attempted to purchase a majority share. UtiliCorp also owns a share of WEL, an electricity distributor based in Hamilton, New Zealand. Several other foreign firms have shown interest in building generation capacity or owning distribution companies. The most successful of these has been Canadian-based Trans Alta Energy Corp., which has invested in distribution and generation assets in New Zealand.
All of this has occurred as New Zealand has developed a philosophy of "light-handed" regulation for the electricity and other sectors of the economy. Under light-handed regulation, there is no explicit regulatory authority responsible for price or other regulation of the electricity industry. Three documents form the centerpiece of this regime:
s Deregulation. The Electricity Act of 1992 eliminated much industry regulation, but provided explicitly for backup regulatory authority for electricity prices charged to domestic (i.e., residential) customers through March 31, 1997.
s Information Disclosure. These new regulations, promulgated in 1994 under the broader Electricity Regulations, have advanced retail competition by requiring the development of (and a basis for)