One of the biggest changes in the history of New Zealand's electricity industry occurs tomorrow (April 1) when the first stage of the Electricity Industry Reform Act (EIR Act) ownership separation rules take effect.

Commissioner Dr Kate Brown said that the Commerce Commission has noted that most traditional power companies have chosen to complete ownership separation in advance of the April 1 deadline. However, some other businesses have not been so quick to understand that they too are covered by this Act.

"The EIR Act casts a wide net," Dr Brown said. "Even at this late stage some businesses are only now realising that the EIR Act applies to them. These businesses may face significant risks."

Organisations that may be in breach of the EIR Act at any of its stages could face legal action from competitors, customers, other interested parties and the Commission.

Courts can impose penalties of up to $5 million against an organisation and $500,000 against an individual, plus up to triple any commercial gain made through business practices that breach the EIR Act. In addition, courts can also award damages, and impose a wide range of orders and injunctions.

The Commission has been heavily involved in adjudicating acquisition and exemption matters.

To date it has received 11 applications for exemptions from the EIR Act. The decisions are:

Exemptions granted, two:

Alpine Energy Limited, Carter Holt Harvey Limited.

Temporary exemptions granted, two:

Auckland International Airport Limited (AIAL) until May 12, Top Energy Limited until 90 days after the Commission makes its final decision on the exemption application.

Exemptions declined, two:

AIAL's first application for permanent exemption, Central Electric Limited.

Application withdrawn by applicant, one:

Transpower New Zealand Limited (now in compliance).

Applications on hand, five:

BHP New Zealand Steel Limited, New Zealand Defence Force, Top Energy Limited, Trans Tasman Properties Limited, one shortly to be withdrawn.

Dr Brown said that the Commission expects its EIR Act adjudication work to decline and enforcement work to increase in the near term.

Background

Key dates in the EIR Act:

April 1, 1999:

Organisations involved in electricity markets must have in place corporate separation of their electricity generation and trading businesses from their lines businesses or have obtained an exemption from the Commerce Commission.

July 1, 1999:

Organisations that have made acquisitions in electricity markets must have completed ownership separation of their generation and trading businesses from their lines businesses or have obtained an exemption.

January 1, 2004:

Organisations that have not made acquisitions in electricity markets must have completed ownership separation of their generation and trading businesses from their lines businesses or have obtained an exemption.

In considering an exemption, the Commission must answer three questions:

  1. Would the exemption inhibit competition?
  2. Would the exemption allow cross-subsidisation between electricity generation and lines businesses?
  3. Would the exemption create a relationship between electricity lines and supply businesses, which is not at arms length?

"The presumption must be that if the answer to any of these questions is 'yes', the Commission must not grant an exemption from the EIR Act," Dr Brown said.

Details of how the Commission applies the EIR Act are available from its website, www.comcom.govt.nz, and its Wellington office. They have been published as Practice Note 3 and the October 1998 issue of its newsletter, Compliance. Also relevant is the Commission's Business Acquisitions Guidelines, which is also available on its website and from its Wellington office.

Media contact: Commerce Act Manager Geoff Thorn

Phone work (04) 498 0958

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

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