Last week the Government released a Cabinet Paper that provided insight into the progress it is making in response to the Electricity Price Review (Review) final report.
The Review, which was commissioned in April 2018 to investigate whether the New Zealand electricity market was delivering fair and equitable prices to consumers, made 32 recommendations. The Government released the final report in October 2019, along with initial comments on how it would respond to each of the recommendations. Many of these responses involved matters that would ultimately fall to the Electricity Authority to address, which it continues to do, evident by yesterday’s announcement that it would ban retailer-initiated 'saves' and 'win-backs' for 180 days after a customer switches.
The Government's response
Cabinet Paper - Progressing the Electricity Price Review’s Recommendations
The recently released Cabinet Paper (dated December 2019) from the Minister of Energy and Resources (Minister), Hon Megan Woods, includes proposals to:
- Amend the Electricity Industry Act 2010 (Act) to provide the Minister a time-limited power to step-in and amend the Electricity Industry Participation Code 2010 (Code) if unsatisfied with the Electricity Authority’s progress. As currently contemplated, the power would only commence after the Electricity Authority has had reasonable time (two years after enactment) to make satisfactory progress. It would also apply only to matters relating to recommendations made in the Review to:
- develop a streamlined way for retailers to process consumer requests for consumption data;
- make distributors offer retailers standard terms for network access;
- prohibit saves and win-backs (which appear to now be implemented);
- establish a pilot scheme to help non-switching households find better deals;
- introduce a mandatory market-making obligation unless the sector develops an effective incentive based scheme; and
- make generator-retailers release information about the profitability of their retailing activities.
- Support phasing-out the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004 (LFC Regulations). However, the Minister has proposed to engage with affected parties and report back to Cabinet later this year with specific proposals.
- Task the Ministry of Business, Innovation and Employment (MBIE) with exploring new institutional arrangements in the energy sector, particularly in light of the emergence of new technologies and the goal of transitioning to a low-carbon economy. One option considered in the Cabinet Paper is whether to give the Minister power to reallocate electricity or gas in situations of acute electricity or gas shortage, with the justification being that it is warranted on the grounds of a "market failure".
- Amend the Act to give the Electricity Authority more powers to regulate distributors' involvement in contestable markets. This would entail 'shifting' several of the provisions from Part 3 of the Act into the Code, which the Electricity Authority can then develop and amend.
The Cabinet Paper also builds on the Government’s initial proposals to:
- establish a cross-sector Energy Hardship Group;
- amend the Act to:
- establish a Consumer Advocacy Council;
- clarify the Electricity Authority's power to gather information from industry participants;
- enable the Electricity Authority to regulate distribution access agreements; and
- give the Electricity Authority an explicit consumer protection function.
Implementing the proposals in the Cabinet Paper
Many of the Government's proposals requiring amendments to the Act will come into effect with the passage of an Electricity Industry Amendment Bill. No specific target date has been set for the introduction of the Bill. For other proposals, such as the LFC Regulations phase-out and review of the sector’s institutional arrangements, the Minister has recommended that further work be conducted to develop the proposals, with the intention of reporting back to Cabinet with specific advice by late 2020.
An open letter from the Minister of Energy and Resources
The release of the Cabinet Paper follows an open letter from the Minister, dated November 2019, to electricity retailers notifying them that the Government was considering regulation of Prompt Payment Discounts (PPDs). While the Review recommended prohibiting the use of PPDs, the Minister indicated that PPDs will be reviewed in six months from the date of the letter (ie March 2020) in light of any development in market practices – leaving the market to self-regulate in the meantime.
The Electricity Authority’s response
The Electricity Authority also continues to progress a number of the Review's recommendations through amending, monitoring and enforcing the Code.
Ban on retailer-initiated saves and win-backs
Yesterday the Electricity Authority announced that it had approved an amendment to the Code to ban retailer-initiated saves (enticing a customer to cancel a switch before it happens) and win-backs (enticing back a customer within 180 days of a switch to another retailer). The amendment to the Code expands on the existing switch-saves protection scheme (which operated on an opt-in basis).
The ban, which will take effect from 31 March 2020, comes following a recommendation in the Review that saves and win-backs should be prohibited, which was supported by the Government in its initial response. James Stevenson-Wallace, Chief Executive at the Electricity Authority, stated that the purpose of the amendment was to "incentivise retailers to offer better prices to their customers upfront, rather than waiting until they decide to leave before offering them a better deal".
Mandatory market-making
Certain generator-retailers have also recently been the subject of an urgent Code amendment by the Electricity Authority to introduce a "dormant" mandatory market making scheme. The scheme is designed as a back-stop and only applies to specified market makers who:
- have entered into a market making arrangement with the ASX;
- have consented to the ASX providing the Electricity Authority with trading data; and
- fail to provide voluntary market making services (and is not otherwise exempt) on three or more separate days within a 90 day period.
The amendment came into force on 3 February 2020, and will expire on 3 November 2020. In a letter to the affected market-makers, the Electricity Authority has indicated that the amendment does not conclude or replace the Authority's longer-term project to develop and implement an enduring solution for market making, and that this work is still ongoing.
We expect that, given the focus of the Government and the Electricity Authority in responding to the recommendations from the Review, developments in this space will continue to progress. Further information on the Review and the progress of the response can be found here.
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