The New Zealand government recently announced a package of 'in principle' reforms to the electricity industry, which have as their primary objective obtaining 'a better deal for electricity consumers'.
The package is aimed at promoting competition in the New Zealand generation market by restructuring the Electricity Corporation of New Zealand Ltd, a state-owned enterprise, into three separate state-owned enterprises which will operate, with Contact Energy Ltd, as competing state-owned generation entities. These generation companies will be allowed to participate in energy retailing activities.
Another feature of the reform package is the forced separation of local electricity supply companies into line and energy retailing businesses. This will require a transfer to a trust by April 1 1999 or a sale by December 31 2003 of either the lines business or energy retailing business. Each supply company must choose to retain ownership either in the lines business or the retailing business; a company cannot retain more than a minor interest in both camps.
The separation of businesses is intended to prevent companies erecting barriers to competition and attracting monopoly profits through artificially high line charges. To ensure these aims are met, the government will put in place mechanisms to enable price controls to be imposed in relation to line charges.
The proposed reforms have prompted an immediate and negative response from the industry. Some participants have suggested they will fight the proposed legislation and, in particular, the enforced divestment, which one participant has referred to as 'legislative theft'.
If the mandatory split is carried through into legislation there will be many opportunities for investment in the New Zealand electricity retail industry over the next five years.
Although the present coalition government is committed to retaining ownership of the generation companies, privatization by future governments cannot be ruled out.
James Aitken and Mathew Tustin
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