Electricity sector

Industry Overview

The New Zealand electricity industry has been subject to major reform, moving away from a structure characterised by fragmented and localised distribution and retail entities (and a dominant state owned electricity generator) to a structure of fewer network companies with competitive generation and retailing markets

Legislative reform required formerly integrated entities to separate their distribution networks from their retail and small scale private generation activities. The generation market has also been subject to significant change, designed to create a contestable market in electricity generation and supply.

Electricity Distribution

Firms within the electricity distribution and transmission sectors have monopoly characteristics and are subject to legislation designed to limit their monopoly powers. The electricity sector is framed by the Companies Act, Electricity Act, Resource Management Act 1991, the Commerce Act 1986, and the Fair Trading Act 1986.

The Government steadily developed the regulatory regime through the Electricity Industry Reform Act 1998 which restricted companies from being involved in both generation and distribution activities, and the Electricity Amendment Act 2001 which focussed on tighter governance of the sector and reducing the monopoly powers of electricity companies. There are two exceptions to the ownership restrictions. Generation companies can own assets that are required to distribute electricity from their power stations to the grid or to the local distribution network, and distribution companies can own small amounts of generation capacity within their network, but are not limited in the level of ownership in renewable generation capacity.

Following the amendments to Part 4 of the Commerce Act introduced in late 2008, the Commerce Commission has undertaken significant consultations on a number of matters pertaining to the economic regulation of electricity line businesses. In parallel, the Ministry of Economic Development has continued to re-examine the electricity market, with the Electricity Industry Bill passed in September 2010.

Electricity Generation

The generation sector is dominated by five major generator/retailers, including three state owned enterprises (SOEs) and two public listed companies. The generation and retail markets are competitive.

A Ministerial Review into the performance of the electricity market was undertaken during 2009, and the legislation to implement the outcomes of the review was passed in September 2010. As a result of the review, the Electricity Commission will be replaced by an Electricity Authority whose objectives will be to promote competition, the reliable supply of electricity and the efficient operation of the electricity market for the long-term benefit of consumers.

Other outcomes of the review include the reconfiguration of generation assets owned by SOEs, a requirement to enhance the level of liquidity of the electricity hedge market, the ability for lines businesses to retail electricity and construct generation, along with a raft of measures to improve market performance and security of supply.

Why PwC?

PwC Global Energy, Utilities and Mining Group has dedicated specialists in 90 countries. Our reputation in this sector has been fortified by the major role our UK firm played in advising the Thatcher Government on the ground breaking restructure of the electricity industry in the United Kingdom , and has subsequently been adopted to differing degrees in other countries.

In New Zealand, PwC is the pre-eminent advisor to the electricity industry having undertaken major assignments for ECNZ and it's successor companies (Genesis Energy, Mighty River Power, Meridian Energy), Transpower, Contact Energy, Vector, Powerco, UnitedNetworks, TrustPower, WEL Networks and numerous mid-size and community-owned electricity businesses.

We have also undertaken assignments on behalf of the Ministry of Economic Development, the Electricity Networks Association and Energy Trusts of New Zealand (Inc), and act for a number of local authorities and trusts in relation to their investments in the industry.

PwC has acted as lead adviser on a number of electricity transactions notably the sale of the lines business of TrustPower - a transaction which yielded sale proceeds of $485 million, the $2.7 billion sale of UnitedNetworks, and the $1.8 billion sale of Powerco to Babcock and Brown. PricewaterhouseCoopers has advised on more than 50 completed mergers and acquisitions in the New Zealand electricity industry with an underlying value in excess of $8.5 billion.

PwC publishes the Electricity Line Business and Gas Pipeline Information Disclosure Compendium, which summarises the disclosure information of New Zealand's 28 electricity line businesses and 4 gas pipeline businesses, as published in the New Zealand Gazettes. The Compendium is compiled annually and is widely used by energy industry participants and their advisors as an industry reference tool. PwC produces a regular publication Leading Energy which analyses recent transactions, providing industry updates and covering relevant issues facing the energy sector in New Zealand.