The Commerce Commission has today granted its first exemption under the Electricity Industry Reform Act 1998 (EIR Act).

Commissioner Dr Kate Brown said that Alpine Energy Ltd's application for exemption from section 17 of the EIR Act has been granted, subject to certain terms and conditions.

Alpine Energy Ltd applied for an exemption so that it could retain 50% ownership of, and a management services contract with, the Opuha Dam power station when the dams' generation capacity is increased from 5MW to 7.5MW.

Dr Brown said, "in making its decision the Commission noted that the scheme is subject to strict Resource Management Act (RMA) consent conditions which bind Alpine Energy's hands in respect of the operation of the generator. The Commission considers that the RMA conditions will constrain Alpine Energy's activities sufficiently to abate any concerns regarding behaviour on the part of Alpine Energy which would defeat the purpose of the EIR Act."

The Commission's decision included an exemption for Alpine Energy from certain clauses of the arms length rules to enable managers from a lines business to work for a supply business. Dr Brown said that "while the Commission considers that the purpose of the EIR Act is best served if, for any relationship between an electricity lines business and an electricity supply business, the arms length rules are applied, in this instance, the Commission was satisfied that certain exemptions were appropriate."

The Commission considered that an increase in the capacity of the Opuha generator from 5MW to 7.5MW, in this particular fact situation, would not:

  • create material incentives or opportunities, such as to defeat the purposes of the EIR Act, for Alpine Energy to inhibit competition in the national electricity retail market, the national electricity generation market, or the local distribution market;
  • create material incentives or opportunities, such as to defeat the purposes of the EIR Act, for Alpine Energy to cross-subsidise the generator from its lines business; or
  • permit a material relationship, such as to defeat the purposes of the EIR Act, between an electricity lines business and an electricity supply business which is not at arms length, provided specific terms and conditions are met.

The exemption does not take affect until published by way of notice in the Gazette. This will occur as soon as possible.

Background

The Commission, pursuant to section 81, exempted Alpine Energy from the application of:

  1. section 17 of the Electricity Industry Reform Act 1998 in relation to Alpine Energy Limited's current involvement (via its subsidiary company Timaru Electricity Limited), and interest in Opuha Dam Limited and in the Opuha Dam Partnership;
  2. clauses 2(7), 2(8), and 2(9) of Schedule 1 of the Electricity Industry Reform Act 1998 in relation to the Management Services Agreement between Opuha Dam Limited and Alpine Energy Limited; and
  3. clauses 2(12) and 2(13) of Schedule 1 of the Electricity Industry Reform Act 1998 in relation to transactions entered into between Alpine Energy Limited and Opuha Dam Limited and between Alpine Energy Limited and the Opuha Dam Partnership.

The exemption is subject to the following terms and conditions:

  1. that Opuha Dam Limited operate its hydro electric generator at a nameplate capacity of 7.5MW or less;
  2. that neither Alpine Energy Limited, Opuha Dam Limited, nor the Opuha Dam Partnership undertake further generating activities at the Opuha Dam or elsewhere;
  3. that Alpine Energy Limited's equity and return rights in Opuha Dam Limited not exceed 50%;
  4. that Alpine Energy Limited shall not at any time:
  • hold more than 50% of the partnership units of the Opuha Dam Partnership;
  • hold in its own right, or exercise in its own right, or as proxy, or as attorney, or in any other manner, more than 50% of the voting rights in the Opuha Dam Partnership; nor
  • hold or receive more than 50% of the equity or return rights in the Opuha Dam Partnership.
  1. that all terms and conditions of the RMA consents, currently held by Opuha Dam Limited, concerning the use, flow, discharge, damming, or otherwise, of water remain in full force and effect and are not altered in any way that would change the basis of this exemption;
  2. that, as part of its related companies disclosure in its Annual Report, Alpine Energy Limited identify the total number and value of transactions entered into between itself and Opuha Dam Limited and between itself and the Opuha Dam Partnership, and maintains a schedule specifying the nature and import of these transactions which is to be made available to the Commerce Commission on request; and
  3. that Alpine Energy Limited comply with section 25 of the Electricity Industry Reform Act 1998 (arms length rules), subject to the limited exemption specified in (b) and (c) above, as if it is exempt from complying with the ownership separation rules by reason of any of sections 28 to 35.

The EIR Act was passed last year and gives companies involved in electricity markets until April 1 this year to put in place corporate separation of their electricity generation and trading businesses from their lines businesses or to have obtained an exemption from the Commission.

Alpine Energy Limited owns the electricity network which services South Canterbury between the Rangitata and Waitaki Rivers including the Mount Cook area, Twizel, Waimate, Geraldine and Timaru. It distributes approximately 500 GWh per annum to 27,000 consumers connected to its network.

Public copies of the Alpine Energy decision are available from reception at the Commission's Wellington office, level 7 Landcorp House, 101 Lambton Quay.

Media contact: Commissioner Dr Kate Brown

Phone (03) 482-1558

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

Commission media releases can be viewed on its web site www.comcom.govt.nz