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Electric Competition in New Zealand: Putting Last Things First

Fortnightly Magazine - June 15 1996

s Pricing. The country has made significant progress toward rational pricing in the electricity industry, eliminating subsidies that had developed under explicit regulation and government ownership.

Further benefits are expected with the advent of competition in generation, planned for October 1996, as the effective separation of Contact Energy and ECNZ is completed and substantial private-sector generation comes on line. t

Christopher Pleatsikas is a senior economist at the Law & Economics Consulting Group in Emeryville, CA. He has advised several New Zealand energy and telecommunications companies on a variety of issues, including mergers and acquisitions, antitrust, and competitive market strategies. He has a PhD in regional economics from the University of Pennsylvania. Bruce Turner is general manager for wholesale supply at Mercury Energy, New Zealand's largest electricity distribution company. He has been active in the electricity reform process through various industry working groups. Turner has a BA in commerce and an MA in engineering from the University of Auckland.

Industry Milestones (1987-96)

1987 - ECNZ (G&T) Formed. Electricity Corporation of New Zealand (ECNZ) formed from Ministry of Energy's former monopoly in electricity generation and transmission.

1988 - ECNZ Deregulated. Generation deregulated, obligation to supply removed for ECNZ in December 1988, removing much of ECNZ's regulatory role.

1993 - Retailers (Distr.) Formed. Energy Companies Act of 1992 allows formation of energy supply (local distribution) companies, directs programs for corporatization and privatization (1993-94). Currently, all local distributors have been corporatized; many have been privatized, either by distribution of shares to customers or community, or through Initial Public Offerings.

1994 - Retailer Deregulation. By April 1994, Electricity Act of 1992 eliminated exclusive franchises, obligation to serve, and price controls for the retail sector.

1994 - Information Disclosure. New Zealand introduces "light-handed" regulation, aided by Electricity Regulations of 1994.

1994 - Trans Power (Grid) Formed. Trans Power, separated from ECNZ in July, becomes owner-operator of national transmission grid and electricity dispatch authority.

1995 - ECNZ (Gen.) Splits. Announced mid-1995, effective February 1, 1996, ECNZ splits into two separate state-owned enterprises: A larger half, still known as ECNZ, and a new company, known as Contact Energy Ltd.

1996 - Wholesale Market Forms. Evolving from an ECNZ internal operation, an open, competitive, wholesale market will commence operation on October 1.

Generating Mix

. Early Development. Early on, New Zealand generating sector is dominated by hydroelectric capacity. First large thermal stations constructed during the 1960s.

. Diversification. Plans to balance capacity mix in 1970s with several large gas-fired stations are thwarted by sharp drop in demand growth following worldwide energy price hikes after 1973.

. Current. Hydroelectric resources now make up about 75 percent of generating capacity, although gas-fired and geothermal capacity make important contributions.

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