News
Government to review electricity sector's continuance of supply obligation
The Government has published a discussion document proposing a review of Section 62 of the Electricity Act 1992 - the Continuance of Supply Obligation.
Section 62 of the Electricity Act 1992 (the Act) provides that New Zealand lines companies are required to continue to supply line services to places that were supplied as at 1 April 1993. This provision remains in place until 31 March 2013.
Consumers in remote rural areas, where the provision of line function services is often uneconomic due to the large distance between customers and the relative expense of servicing the lines, are most likely to be affected by the expiry of the continuance of supply obligation. Under current law, from 1 April 2013 lines companies will no longer be statutorily required to provide a connection to remote rural, or any, customers. The most likely consequence is that, as lines become damaged after weather events or generally become unusable, supply will either be terminated or the cost to consumers in remote rural areas will increase significantly.
The Ministry of Economic Development (MED) has asked for public comment by 28 September 2007 on a range of options to replace the continuance of supply obligation. These are set out in the table below.
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Option |
Brief description |
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a. Continuance of obligation to maintain line function services with no expiry date. |
Subsection 6 of section 62 is repealed so that line function services must be supplied in perpetuity. |
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b. Continuance of obligation to maintain supply, using lines or alternatives, with no expiry date. |
Subsection 6 of section 62 is repealed so that services must be supplied in perpetuity, but lines companies can choose whether this is by lines or through an alternative method such as remote area power system (RAPS). |
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c. Continuance of obligation to maintain line function services expires but lines companies provide information on intentions in advance. |
Requirement for lines companies to provide information on intentions and notification if they intend a change in, or removal of, supply to consumers. |
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d. Continuance of obligation to maintain line function services expires but lines companies assist transition from lines supply to alternative. |
Requirement for lines companies to assist in management of a transition to alternative provision where they wish to no longer maintain "uneconomic" lines. |
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e. Continuance of obligation to maintain supply, using lines or alternatives, for a limited time beyond 2013. |
2013 date in subsection 6 is changed, and section 62 continues until a new expiry date. Lines companies could maintain supply via alternatives or lines. |
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f. Continuance of supply, using lines or alternatives, with no expiry date but subsidy is from all electricity users. |
The subsidy required to maintain connections on uneconomic lines is recovered from all electricity users. |
MED will make recommendations to the Minister of Energy on any proposed changes to Section 62 of the Act by the end of 2007, after reviewing public comment on the discussion paper.
Clearly, stakeholders will have different perspectives on the expiry of the continuance of supply obligation and on the best regime, if any, to replace it.
Consumers who are currently supplied by lines that would be uneconomic will be concerned to ensure that supply is continued and on similar terms, including price. Consumers in "economic" lines areas will be concerned that the line charges they pay do not economically subsidise the maintenance of uneconomic lines in other areas of the line company's network. Line companies which are already operating in a price regulated market will be concerned to ensure that a market return on capital is obtained in the use of their assets and that they have flexibility to make investment decisions on the same basis as any non regulated business. Other considerations relate to issues under the Consumer Guarantees Act and the Electricity Regulations relating to the quality and standard of line function services.
Bell Gully is currently assisting various line companies with submissions on the discussion document. For further information please contact Andrew Abernethy, Chris Hay or your usual Bell Gully adviser.
