ENA Update Alan Jenkins Chief Executive

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ENA UpdateAlan JenkinsChief Executive
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Politics of Power

• No parties want to own electricity this year
• The Government thinks the hard work is done, and
  is minting money (but keep that in perspective -
  lt500m in electricity SOE surpluses vs tax take
  of gt70 bn).
• National wont want to polarise farmers on the
  one hand or consumers on the other.
• No great minor party interest except from the
  Greens.

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Politics of Power

• Unclear if Trevor Mallard is here to stay. If
  the Government needs either the Greens or NZ 1st
  then energy could be a sacrificial portfolio.
• A belief that the Electricity Commission will
  keep any Minister honest!
• Theres an increasing risk that the
  Commission/Crown will end up underwriting future
  generation, by default.

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Politics of Power

• So expect a political focus on what were
  traditionally fringe issues (sustainability,
  conservation, consumer complaints).
• Whether the Electricity Commission can keep the
  politicians on track will depend heavily on who
  they are.

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What about Transmission?

• Everything seems back to front!

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Transmission

• Transpower have to plan without a Power Plan.
• Generation decisions are divorced from
  transmission ones.
• Big judgement calls for the Electricity
  Commission
• Be risk averse?
• How much faith should they have in green
  alternatives and distributed generation?
• What will the politicians let them do anyway?
• Will they become the central planner by default?

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Transmission vs Distribution

• We face a risk, especially in the longer term,
  that transmission will grow at the expense of
  distribution.
• Theres no rigid demarcation.
• Transpower have a better allowed rate of return
  under the ComCom regime.
• Once theyve got through the bulge of their next
  big build phase, theyll be likely to look
  downstream.
• Its therefore important to avoid top-down
  thinking.

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Generation Retailing

• Very much the domain of the Govt, the Electricity
  Commission, and the SOEs.
• However, power security quality are likely to
  become increasingly reliant on distribution
  fixes.
• Also, Commerce Commission delving deeper into
  energy markets.

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Generation Demand

• We shouldnt lose sight of the pressures of
  rapidly rising demand and uncertain future
  supply. The 1984 Energy Plan looked out to 2004
• Total consumer energy demand was forecast to be
  460 PJ this year, which was a bit conservativeit
  reached 500 PJ last year (bear in mind this is up
  from a base of 300 PJ in 1984). Total electricity
  generation was forecast to reach between 34,000
  and 44,000 GWh and it looks as though it will be
  just above that higher growth estimate if you
  account for different treatment of distributed
  generation Whirinaki in the MEDs stats.

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Some grounds for feeling uneasy

TWh
Equiv in place
X
X
X
X ?
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Distribution

• Issues and uncertainties are mounting.
• Reinvestment and new investment are very badly
  incentivised.
• Distributors have been regulated away from key
  services they are good at (distributed
  generation, metering load management,
  controlling energy losses, customer community
  relations, even R D).
• Traditional supportive relationships with
  transmission and generation have been eroded.

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Distribution Investment

• Margaret Beardow explains it well

Past distribution investment

Future investment needs
1940
2050
2005
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Distribution

• Regulation has the potential to stifle
  distributors.
• Companies will necessarily breach thresholds as
  they invest in renewal, risking further
  constraints. Commerce Commission is sympathetic,
  but real risk of politicians intruding.
• Spending on anything other than the old poles
  wires assets may well be penalised (ODV has been
  retained too).

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stifling effect of regulation

• As just one example, distributors have had major
  successes with innovation (from the single wire
  earth return system, through to controlled hot
  water systems, and to Whispergen) and have also
  supported RD work in parallel fields such as
  wind energy.
• The CPI-X regulatory regime suppresses this type
  of spending cross-subsidies are to be avoided
  unless they are government-driven.

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customer focus

• Increasing regulatory pressure towards being
  demand driven.
• Small customers ill-equipped to do this.
• Spin from others a constant problem (waste
  money on advertising self-promotion?).
• Also strong top-down drives to invest to reduce
  transmission load peaks, not to optimise system.
• Myth of customer choice very little scope to
  give smaller individual customers choice.

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even poles and wires

• The customer poles issue is another casualty of
  regulatory rigidity.
• Many (around 100,000) are gt40 years old.
• A lot have been neglected or abused.
• Most were orphaned by the Electricity Act 1992
  even controlling vegetation under them has been
  forgotten.
• Distributors are the only parties able to fix the
  problem, but customer poles are not recognised by
  the thresholds regime.

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Distributors and Distributed Generation

• The market discriminates against DG
• Remote generators get free transmission
• A little bit of DG means a big drop in the local
  nodal energy price
• Transmission charges are driven by system peaks,
  not average loads
• Back-up generation has been run down, and hedging
  is difficult (especially for distributors).

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Distributed Generation

• The distribution industry is at a cross-roads
• Should we be creating active networks, able to
  support a haphazard mix of windmills, solar
  arrays and mainstream power?
• Should we become a driving force in DG investment
  (assuming the Govt lets us)?
• Or should we stick to our knitting because
  regulation and SOE dominance issues make it all
  too hard?

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Resources are a Key Issue

• The whole electricity industry is heading towards
  a parallel investment boom.
• Well be trying to build distribution lines, the
  Grid, generation and system support with the same
  workers, engineers and financial support
  structures (notably the power price).
• Well also be competing with everything from
  roading and water to municipal waste disposal for
  those resources.

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Summing Up

• The Electricity Commission has a huge task with
  transmission (and perhaps reserve energy), and
  its processes are overhung by political
  uncertainty.
• Pretty soon it will have an even bigger task with
  generation, unless the market is somehow kicked
  into action.

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Summing Up

• Giving distributors the incentives and the
  flexibility necessary to contribute to the wider
  industrys resource needs is the key to
  reforming reform.
• The industry needs to focus urgently on
  minimising the impacts of boom bust
  investment.

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ENAs Priorities

• All of the above. Getting rid of the distortions
  and perverse signals of poorly structured
  regulation is our central focus.
• Promoting joint protocols and concerted
  approaches by members is another.
• So is getting decision-makers to understand the
  impacts of their decisions.
• Finding the resources to do this is a challenge.