LEADERSHIP Chair and Group Chief Executive report
The extraordinary wholesale electricity market volatility was especially noticeable late last year, when wholesale prices appeared to be significantly out of kilter with market conditions. In December, Vector joined an Undesirable Trading Situation submission by a group of independent retailers, asking the Electricity Authority (EA) to look more closely at the wholesale market. We did this because we believe it is not in the interests of consumers to see innovative new retailers being squeezed out of the market. We think that’s an outcome which is bad for consumers, and bad for competition. Just as importantly, we are nearing the next reset of regulated pricing and quality standards for the electricity distribution sector, scheduled to take place in 2020. What is increasingly clear is that, given the pace of change, the existing regime for quality control, last reset in 2015, no longer reflects the reality of the changed operating environment, particularly in relation to health and safety legislation and the impact of Auckland growth. Therefore, we will continue to work constructively with the Commerce Commission on the new quality standards scheduled to take effect on 1 April 2020, following the regulatory reset process. The electricity sector is not alone in facing the need to have fit-for-purpose regulation that can meet the difficult challenges presented by rapid technological disruption, volume growth or changing consumer preferences. Many other sectors and their associated regulatory bodies, such as telecommunications, aviation, petrol and banking, are grappling with the same issues. In other matters, Vector welcomed the High Court’s decision in December on a judicial review of the long-standing Utilities Disputes Limited case. We pursued this because network infrastructure providers, and their customers, would have been potentially significantly impacted by the precedent created by the original decision of the Utilities Disputes Commissioner. This common-sense decision
It can set new ground rules for the sector that will maximise benefits for the next generation of energy consumers, promote equitable outcomes, as well as help enable New Zealand’s sustainability ambitions. We also believe it’s an opportunity to recognise the infrastructure demands of high growth areas such as Auckland. We need the right policy settings and investment incentives to ensure high growth and evolving energy needs are met. It won’t be easy. While New Zealand has long prided itself on its electricity market, it’s clear there are major challenges emerging. Today, our wholesale electricity market is extraordinarily volatile, which exposes retailers without generation capability to significant difficulties. We have limited hydro storage. There is coal being imported to plug the generation gap between supply and demand. We have seen gas production constraints. We have uncertain incentives around technology investment. We have relatively slow uptake of solar, battery and EVs compared with many other countries. And according to the Government, customers are paying more for their energy than ever amidst concerns over energy affordability. That said, the Electricity Pricing Review Panel’s Options Discussion paper published in late February this year is largely encouraging. It favours options that reflect the importance of new technology, greater resilience and improved customer choice, as well as options that improve market transparency and address practices that may stifle competition or unfairly penalise some consumers. As the review is finalised, we also hope to see an even greater focus on options that improve energy efficiency, and, most importantly, address problems experienced in the wholesale market.
16
Vector://IR 19
Made with FlippingBook Online newsletter