Minister seeks intervention power if gas supply runs short

The Government is investigating whether it should give the Minister of Energy power to "reallocate electricity or gas in situations of acute electricity or gas shortage."

The move has alarmed the Petroleum Exploration and Production Association of New Zealand, which suggests it would be ironic if the Government's 2018 ban on offshore oil and gas exploration were to cause ministers then to intervene and claim there had been "market failure" because of a shortage of natural gas supplies.

The proposal is buried deep in a paper taken to the Cabinet by the current energy minister, Megan Woods, on December 11 last year and released proactively late last week. It covers a wide range of recommended actions aimed at alleviating energy poverty and keeping an eye on how the fast-changing electricity market develops.

The one-line reference suggests ministerial intervention could be developed aa "low-impact option" in the event of "market failure".

"A possible option is the provision of emergency powers to reallocate electricity or gas in situations of acute electricity or gas shortage."

The proposal has raised immediate concerns with PEPANZ, which sheeted the potential for shortages of natural gas - the fuel routinely used to generate electricity when wind and hydro-electric resources are not available, along with higher carbon-emitting coal, which has been used more heavily to generate electricity during the past two years due to tight gas supplies.

"It would be very strange for the government to ban offshore exploration for gas on one hand, and then to be so concerned about shortages," said John Carnegie, PEPANZ's executive director, in talking points released to BusinessDesk.

"We would hope that such a power would never be used, but the mere fact of its existence would create uncertainty."

The Cabinet paper also contemplates giving the energy minister powers to intervene on "long-standing issues for the electricity industry that have proven challenging to progress", such as the "long-running review of transmission pricing" - an issue at the heart of years of wrangling by major electricity users at both ends of the country, including Southland's Tiwai Point aluminium smelter and the NZ Steel smelter and oil refinery in Auckland and Whangarei over how the costs of the national grid should be allocated.

Ministerial intervention to improve the operation of wholesale electricity hedge markets, where small retailers with no power stations like Flick Electric and Electric Kiwi can be caught on the wrong side of volatile wholesale price movements, is also contemplated.

The Cabinet paper was a follow-up to an Electricity Pricing Review that was ordered as part of the government's coalition agreement with the NZ First party, which found little to fault in current electricity market arrangements, but sought more action on energy poverty.

"While I am confident the Electricity Authority will focus its full attention on all of the matters recommended by the review, I think it desirable to strengthen the incentives on the industry and the regulator to implement specific matters in a timely manner," says Woods's paper.

"I propose to amend the Electricity Industry Act to enable the Minister of Energy and Resources to amend the Code if the Minister is not satisfied with the progress on specified matters at a specified date"

She proposes the Electricity Authority be given two years to act on a range of identified issues before a minister would act, with two years before any announced intervention would take effect.

Despite New Zealand's levels of renewable electricity supply constantly rising over the past two decades under current market rules, Woods also endorses the review's finding that there is a "lack of common purpose across the supply chain and a tendency for self-interest to make issues more complicated than perhaps they need to be."

Carnegie also sent a warning shot across the bows of major energy users hoping to secure cheaper gas and electricity through threats of government intervention.

"If electricity market participants are promoting this idea as a tool to keep electricity prices down, they should know better and look beyond their own short-term self-interests," he said.

- By Patrick Smellie