Amendments to the Electricity Industry Act: suite of changes bolsters the Electricity Authority and introduces new consumer protection objective

Monday, September 19, 2022

The Electricity Authority’s role is expanded under the Electricity Industry Amendment Act 2022 (the Amendment Act) to include protecting the interests of domestic and small business consumers.

The Amendment Act makes changes to the Electricity Industry Act 2010 (the Act) and the Electricity Industry Participation Code (the Code) and was granted Royal assent on 31 August. The Amendment Act implements a number of the recommendations of the Electricity Price Review undertaken by MBIE in 2019.

What are the key changes to the Act?

Some of the key changes to the Act include:

Protection by the Authority of domestic and small business consumers

The objectives of the Electricity Authority (the Authority) are clarified to include protecting the interests of domestic and small business consumers in relation to the supply of electricity to those consumers. The change has been made because it has been uncertain whether the Authority can regulate to deal with some matters relating to an industry participant’s dealings with domestic and small consumers, such as some aspects of the terms and conditions of residential retail contracts, and some aspects of how retailers deal with small consumers who have fallen behind on bill payments.

The additional objective is not intended to affect the Authority’s functions relating to how industry participants deal with each other and is expressly limited to apply only to the Authority’s activities in relation to the dealings of industry participants with domestic and small business consumers. The relevant provision in the Act has a transitional period and will come into effect on 31 December 2022.

Despite the limitation of this additional objective to dealings of industry participants with these consumers and the Government’s expectation that it will affect only a small portion of the Authority’s work, this change is still an important expansion of the Authority’s powers. This change will give the Authority the power to deal with more aspects of the relationships between electricity industry participants and domestic and small business consumers.

In line with this additional objective, section 32 of the Act is amended to make it clear that the Code can contain provisions which promote the protection of the interests of domestic and small business consumers in relation to the supply of electricity to those consumers. The Authority’s functions in the Act have also been amended to reflect this change.

Power to regulate distribution access agreements

The Act now expressly provides for the Authority to require electricity distributors to enter into distribution agreements with other industry participants, similar to an existing provision that applies to Transpower. 

In addition, the matters that the Code can apply to are expanded to allow the Authority to set quality or information requirements for access to distribution networks. Until now, the Act prevented the Code from dealing with such matters, leaving them for regulation by the Commerce Commission. In particular, this change will mean that default distribution agreements can deal with quality and information requirements, both important aspects of such agreements.

The functions of the Authority and the Commission will now overlap in this area. The Act includes requirements on the Commission to take this into account in performing its functions.

Promoting competition in evolving contestable markets

Part 3 of the Act previously provided for the corporate separation of some electricity distribution functions from electricity generation and retail and the application of arm’s length rules where distributors are involved in generation and retail activities on their networks. The aim of the provisions is to ensure that some electricity distributors are not able to leverage their monopoly position in local distribution markets to limit competition in generation and retail markets, which may result in poor outcomes for consumers.

The Act moves these provisions to the Code and makes some other related changes to the powers of the Authority. The reason for these changes is to allow the Authority to amend the provisions to deal with new competition problems that might arise if distributors (and the Government has stated, Transpower) become involved in emerging technologies in a way that leverages their market power in distribution or transmission to reduce competition for those emerging technologies.

While the involvement of Transpower and distribution companies in emerging technologies (such as solar generation) can be a good thing, in particular by providing investment, there is also a concern that these companies could favour their own involved businesses, for example, by providing preferential terms for the use of their distribution network over other emerging businesses. The Electricity Price Review recommended that the regulatory regime needed to be more flexible in order to respond to these new issues.

Establishment of advocacy agency

The Electricity Price Review found that household and small-business electricity consumers struggle to make their voices heard and exert influence over decisions affecting them in the electricity sector. As a result, the Consumer Advocacy Council was established to represent and advocate for the interests of domestic and small business consumers in the electricity industry.

The Act now includes provisions for the operation of the Council, called the “Small Electricity Consumers Agency” in the Act.

Enforcement changes

To further deter industry participants from breaching the Code, the maximum penalty that the Rulings Panel may impose on an industry participant for breaching the Code is increased from $200,000 to $2 million.

The Rulings Panel can now also impose an additional $10,000 penalty for every day (or part-day) that a breach continues, to incentivise parties to remedy breaches in a timely fashion.

The Government intends to amend the Electricity Industry (Enforcement) Regulations 2010 in coming months to make changes to the processes for investigating and enforcing Code breaches.

Are there any other changes to know about?

Other noteworthy changes to the Act include:

  • The Authority’s powers are clarified to make it clear that the Authority can gather information from industry participants in order to carry out reviews or investigations upon the request of the Minister;
  • While the Authority already had the ability to exempt an industry participant from compliance with the Code, the Act now provides that the Authority can set any terms or conditions for an exemption that it reasonably considers are necessary;
  • Where amendments are made to the Code under urgency, the process for the Authority to revoke these amendments is now shortened;
  • Information sharing provisions are introduced which expressly allow the Authority to share information with other public service agencies and statutory entities; and
  • The Minister is provided with a backstop power to amend the Code for specified matters if satisfactory progress has not been made. This was a focus point for debate as there was concern that this power could erode the Authority’s independence. However, the power is time-limited and relates only to specified matters that were recommended by the Electricity Price Review as requiring amendment, which the Government also agreed were priorities for the Authority to address. The Act contained a similar provision when it was enacted in 2010 under the National Government.

Special thanks to Senior Solicitor Lauren Gillies for preparing this article. For more information, please contact a member of our Corporate and Commercial team

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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