Background to governance and regulation
For most of its history, the development of New Zealand's electricity system was the domain of central government.
The passing of the Water Act 1903 gave the Crown the right to use water for generating electricity and the establishment of the Hydro-electric Branch of the Public Works Department followed in 1911. This became the State Hydro-Electric Department in 1946, and the New Zealand Electricity Department in 1958.
In 1978, the Electricity Division of the Ministry of Energy assumed responsibility for electricity generation, transmission, policy advice and regulation. Local distribution and supply were the responsibility of 61 Electricity Supply Authorities (ESAs).
In the early 1980s, a major review of the Crown's role in the electricity industry commenced, looking to separate operational from other functions, improve commercial performance and introduce commercial disciplines for trading activities.
In 1986, the Government announced its intention to reform its electricity industry activities. The Electricity Corporation of New Zealand Limited (ECNZ) was set up as a company under the State-Owned Enterprises Act 1986 to own and operate the generation and transmission assets of the Ministry of Energy. Policy and regulatory activities largely remained with the Ministry of Energy.
In September 1989, an Electricity Task Force, comprising members of government departments, ECNZ and ESAs, recommended, among other things, separation of the ownership of generation and transmission assets and the development of a light-handed regulatory regime.
During the 1990s, the industry developed three self-regulating arrangements to govern the operation of the electricity market:
- The Metering and Reconciliation Information Agreement (MARIA). Established in April 1994, MARIA was a multilateral contract specifying metering and reconciliation standards, which allowed electricity flows to be matched against electricity supply contracts. This enabled large consumers to switch electricity suppliers, and with the implementation of load profiling in April 1999, it enabled all consumers to switch electricity suppliers (now called electricity retailers).
- The New Zealand Electricity Market (NZEM). Established in October 1996, NZEM was a multilateral contract governing the operation of a newly created wholesale electricity spot market. Although voluntary, the spot market accounted for about 80% of electricity bought and sold in New Zealand.
- The Multilateral Agreement on Common Quality Standards (MACQS). Established in August 1999, MACQS provided a mechanism for grid users to determine the common elements of quality of electricity supply across the national transmission grid.
Governed by industry signatories to the agreements, the rules in these three agreements are the foundation for today's Code.
By early 2000, concerns about sector performance resulted in a ministerial inquiry to examine whether the regulatory arrangements for the transmission, distribution, wholesale and retail sectors were best suited to ensuring that electricity was delivered in an efficient, reliable and environmentally sustainable manner to all consumers.
The report of the inquiry supported continuation of the self-regulation approach, but recommended further evolution of existing industry arrangements, as well as introduction of targeted price control for electricity lines businesses.
The Government stated in its “Power Package” that it favoured industry solutions where possible, with regulation only where necessary. A Government Policy Statement (GPS) was released outlining the Government's expectations for further evolution of the self-regulatory arrangements in the electricity industry. The GPS required the integration of the three multilateral agreements, and required the governance bodies to comprise independent persons, instead of parties to those agreements, as previously. The Government also indicated that it would introduce legislation which would enable it to regulate if necessary.
In response, industry participants began the development of an integrated set of self-governance arrangements for the sector. Establishment of an industry self-governance body, the Electricity Governance Board, was part of this. The arrangements, covering wholesale market, retail market, transmission and grid security issues, were authorised by the Commerce Commission in September 2002.
In April 2003, the Electricity Governance Establishment Committee put forward a set of self-regulatory arrangements for the sector. However, later that year a vote on the proposed arrangements failed, largely because it did not attract the support of consumer organisations or the majority of transporters (distributors and Transpower).
As a result of this breakdown, the Government established the Electricity Commission under the Electricity Act 1992 to regulate the market.
The new Commission was given clear priorities on commencement in 2003. These included implementation of a security of supply policy; establishing a process for approving transmission investment approvals; strengthening the operation of the wholesale market; and completing a development plan for real-time electricity system operations.
Following a further ministerial review of the sector in 2009 owing to concerns about security of supply, the affordability of electricity and the duplication of electricity sector governance, the Government passed the Electricity Industry Act 2010, replacing the Electricity Commission with the Electricity Authority from 1 November 2010.
A detailed chronology of New Zealand's electricity reforms, including details of the 2009 review, recommendations and policy decisions can be found on the Ministry of Economic Development's website (see 'Related Links').
This page is related to: About the Authority.