Electricity Industry Reform Act: Commission grants exemption to Vector

The Commerce Commission has granted Vector Limited a limited exemption under the Electricity Industry Reform Act 1998 (the EIR Act) in relation to its proposed involvement in the development of the Te Rere Hau wind farm situated on the Tararua Ranges near Palmerston North.
NZ Windfarms Limited and NPBB Pty Ltd have entered into a joint venture to develop the Te Rere Hau wind farm. Vector has agreed to subscribe for an interest in NZ Windfarms.
The limited exemption is granted in respect of certain Arms Lengths Rules required by the Act in relation to the appointment of managers to the board of NZ Windfarms. The exemption is also conditional on the generation assets not being connected to Vector's electricity lines networks, and on Vector not selling the resulting electricity to customers located on its own network.

Commission Chair Paula Rebstock said that the Commission had determined that the granting of the exemption would not create incentives or opportunities to inhibit competition in the electricity industry as Vector will not be connecting the generation assets to its own network or selling the electricity to its own lines consumers.

A public version of the Commission's decision is available on the Commission's website under Public Registers/Electricity Industry Reform Act - Exemptions


Background

Vector Limited is involved in electricity distribution in the Auckland and Wellington regions and also owns a portfolio of infrastructure assets, including gas transmission and distribution pipelines. Vector is listed on the New Zealand Stock Exchange with its majority shareholder being the Auckland Energy Consumer trust.

The electricity industry has four main parts: electricity generation, electricity transmission, electricity distribution (lines businesses), and electricity retail. Only generation, distribution (lines), and retail are covered by the EIR Act.
Under the EIR Act, a company may have an ownership interest in both generation and retail businesses, but generally needs permission to own both lines and generation, or lines and retail. It seeks that permission by applying for an exemption under the EIR Act.

The purpose of the EIR Act is to reform the electricity industry to better ensure that costs and prices in the electricity industry are subject to sustained downward pressure and the benefits of efficient electricity pricing flow through to all classes of consumers, by effectively separating electricity distribution from generation and retail and promoting effective competition in electricity generation and retail markets.

The Commission may grant an exemption in respect of a business or involvement or interest, only where doing so:
a) would not result in certain involvements in electricity lines businesses and electricity supply businesses which may create incentives or opportunities:
I. to inhibit competition in the electricity industry; or
II. to cross-subsidise generation activities from electricity lines businesses; and
b) would not result in relationships between electricity lines businesses and electricity supply businesses which are not at arms length.