The call from trusts and lines companies for the lifting of restrictions on their ability to invest in electricity generation and retail was, in essence, a call for most of the Electricity Industry Reform Act introduced by the previous government to be repealed, Hodgson told the annual meeting of the Energy Trusts of New Zealand in Wellington last Thursday night.

Lines companies were already able to retail the electricity they generated up to 2% of maximum demand or 5MW, and the Electricity and Gas Industries Bill currently before Parliament would increase that to 10% or 25MW. “And I am open to suggestions from the Select Committee for increasing the threshold even further,” Hodgson added.

However, he said the introduction of that bill could not be delayed as there was too much of the new Electricity Commission regime, particularly regarding security of power supply, dependent it becoming law.

Solutions to several scenarios would have to be found before network companies could ever compete against the generator-wholesaler-retailer firms.

There was a risk lines companies might be tempted to create difficulties for competing local distributed generation, especially where the lines company had the intention of investing in similar local generation itself. Furthermore, a potential new-entrant generator would need to reveal commercially confidential plans to the lines company – a possible competitor.

“If lines companies were permitted unfettered investment in generation and retail operations, logically, generation and retail companies would have to be given the ability to invest in lines activities. This may result in vertically integrated regional companies with considerable market power across generation, lines and retailing activities.

“Finally, if a lines company that was permitted to retail electricity simply purchased the customer base of an existing retailer, there might be little real improvement in competition. A lot of money would change hands, and the bankers, lawyers and consultants would do well, but consumers wouldn’t see any benefit.

“It might therefore be necessary to prohibit lines companies from purchasing existing customer bases, and require them to compete for customers against existing retailers.”

Hodgson said these were just some of the issues that needed resolution before any return to full integration of the electricity industry could even be contemplated.