History of government involvement in electricity
For most of its history, the New Zealand 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.
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.
In the early 1980s
A major review of the Crown's role in the electricity industry looked at separating operational from other functions, improving commercial performance and introducing commercial disciplines for trading activities.
The government announced its intention to reform its electricity industry activities. The Electricity Corporation of New Zealand Limited 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.
An Electricity Task Force recommended 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) 1994, the New Zealand Electricity Market (NZEM) 1996 and the Multilateral Agreement on Common Quality Standards (MACQS) 1999. The rules in these three agreements are the foundation of today’s Code.
By early 2000
Concerns about industry 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.
A more detailed chronology of the New Zealand electricity sector reform is available from the Ministry of Business, Innovation and Employment (MBIE) website.
The report of this inquiry supported continuation of the self-regulation approach but recommended further evolution of existing industry arrangements.
The government stated it favoured industry solutions where possible, with regulation only where necessary.
In response, industry participants began the development of an integrated set of self-governance arrangements for the sector under an industry body, the Electricity Governance Board.
A set of self-regulatory arrangements for the sector were put forward by the Electricity Governance Board. 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).
Due in large part to this failure, the government established the Electricity Commission in May 2003 under the Electricity Act 1992 to regulate the market.
Concerns about the security of supply, the affordability of electricity and the duplication of electricity sector governance resulted in a ministerial review in 2009.
The two main weaknesses of the electricity market identified by the ministerial review were:
- insufficient and inappropriate incentives to manage hydro storage during periods when the weather is dry for extended periods
- inadequate competition in the markets for electricity, especially the retail market, for prices to be restrained in all circumstances to efficient levels.