Asset transfer set to benefit consumers

  • Hekia Parata
Energy and Resources

Acting Minister of Energy and Resources, Hekia Parata, today announced details of the transfer of the Tekapo A and B power stations from state-owned electricity generator-retailers Meridian to Genesis Energy.

The move is part of the Government’s programme to improve New Zealand’s electricity sector.

The transfer of Tekapo A and B power stations are part of the package of measures agreed by Cabinet in December 2009 following the Ministerial Review of the Electricity Market. The measures are designed to improve competition in the industry, promote reliability of electricity supply and improve governance in the sector.

“At the moment, Meridian has little generation in the North Island and Genesis Energy has none in the South Island. This geographical imbalance has meant there is less competition between retailers than is desirable,’’ Ms Parata says.

”This move will allow consumers greater choice and encourage the SOEs to compete more, as truly nation-wide suppliers, which will constrain future price increases. In parts of the South Island in particular, companies are already offering extremely generous deals for consumers."

As both companies will have power stations on the Waitaki River system, a Water Management Agreement will be put in place to set out the responsibilities of Genesis Energy and Meridian in jointly managing water flows along the Waitaki, through minimum monthly releases from Lake Tekapo to Lake Pukaki.

The transfer agreement also includes a short-term hedge which requires Genesis Energy to sell a portion of the output from the Tekapo stations to Meridian, at market prices, with that portion declining over four years to zero.

This facilitates a gradual managed adjustment of Meridian’s South Island retail position as a result of the sale of the Tekapo power stations.

“This is about balancing the short-term impact of the change for the SOEs with the long term interests of the New Zealand economy,” says Ms Parata.

The transaction will take place on 1 June 2011.

More information about the electricity reforms is available at www.med.govt.nz/electricity-market-review. Copies of the sale and purchase agreements, excluding commercially confidential information, will be gazetted.

Background Info

The 2009 Ministerial Review of the electricity market concluded that although a large part of the increase in electricity prices over the last decade was justified, prices to some customer groups (especially residential consumers) had risen faster than justified by underlying increases in generation costs.

The review noted residential margins were high, competition between retailers was weaker outside the main centres, particularly in the South Island, and some generators had market power in the wholesale market in dry years.

In December 2009 the Government adopted a number of initiatives specifically designed to improve competition in the electricity industry. These included reallocating virtual and physical assets between the SOE generator-retailers Meridian, Genesis Energy and Mighty River Power.

The physical asset transfers are made possible by the new Electricity Industry Act passed in October 2010, which gives the shareholding Ministers a specific and limited power to issue directions to Genesis Energy and Meridian to implement these decisions.

What is the purpose of the physical asset transfer?

The SOE generator-retailers are not well-balanced geographically: Genesis Energy has no generation in the South Island, and Meridian has little generation in the North Island. This geographic concentration, combined with transmission constraints, means that the SOEs have a regional focus in their retail businesses and competition between them is weaker than desirable. The physical asset transfer compliment the virtual asset swaps that was implemented in December 2010. Rebalancing the SOE assets, through physical transfers and virtual asset swaps, will increase competition for retail customers, and constrain future price increases.