• “(1) The purpose of this Act is to better ensure—

  • “(a) that costs and prices in the electricity industry are subject to sustained downward pressure; and

  • “(b) that the benefits of efficient electricity pricing flow through to all classes of consumers; and

  • “(c) new investment in generation from renewable energy sources.

• “(1A) The Act does this by—

  • “(a) effectively separating electricity lines from generation and retail where those activities are co-located; and

  • “(b) promoting effective competition in electricity generation and retail; and

  • “(c) limiting barriers to new investment in generation from renewable energy sources.”

• “(2) The particular purpose of Parts 1 to 3 and 5 (separation of lines and supply) is—

  • “(a) to prohibit certain involvements in electricity lines and electricity generation and retail that may create incentives or opportunities—

    • “(i) to inhibit competition in the electricity industry; or

    • “(ii) to cross-subsidise generation or retail activities from electricity lines activities; and

  • “(b) to restrict relationships between a business that has involvement in electricity lines and a business that has involvement in electricity generation or retail, where those relationships may not otherwise be at arm's-length; and

  • “(c) to provide specified exemptions for new investment in generation from renewable energy sources.”

“connected customer, in respect of a person, means a consumer (within the meaning of section 2(1) of the Electricity Act 1992) to whom that person sells electricity, if—

• “(a) the electricity is conveyed to that consumer on a line in which the person is involved; and

• “(b) the consumer and the line are within the same local network area

“connected customers selling cap means the rule in section 17C

“connected electricity business has the same meaning as in section 17D

“connected generation, in respect of a person, means generation in which the person is involved that is connected to a line in which the person is involved, if the generation and the line are within the same local network area

“connected generation cap means the rule in section 17A

“electricity business means a business that does any of the things referred to in section 7(1)(a) to (c)

“financial year means a period of 12 months ending on 31 March

“line means works that are used or intended to be used for the conveyance of electricity, and includes a wire or cable

“local network means the lines, and associated equipment, owned or operated by an electricity distributor (within the meaning of section 2(1) of the Electricity Act 1992) in a contiguous geographic area or areas but does not include the national grid, and local network area has a corresponding meaning

“manager, in relation to a person,—

• “(a) means a person who, whether alone or jointly with any other person, manages, or directs or supervises the management of, the whole or a substantial part of the business and affairs of the person; and

• “(b) includes, for the avoidance of doubt,—

  • “(i) in relation to a trust, a trustee:

  • “(ii) in relation to a local authority, a member; but

• “(c) does not include,—

  • “(i) in relation to a body corporate, a director of that body corporate:

  • “(ii) in relation to an electricity business in which a local authority or any other person has an interest, a member of that local authority or manager of that person only as a result of having that position

“nameplate means the full-load continuous rating of a generator under specific conditions as designated by its manufacturer and measured in megawatts in accordance with International Electrotechnical Commission Standard 60034-1 or any successor to that standard or any recognised equivalent standard

“ownership separation rules means the rules in sections 17 to 17C and section 20 (non-specific interests rule)

“qualifying generation has the same meaning as in section 17C(2)

“renewable energy source means solar, wind, hydro, geothermal, biomass, tidal, wave, ocean current sources, or any other energy source that occurs naturally and the use of which will not permanently deplete New Zealand’s energy sources of that kind, because those sources are generally expected to be replenished by natural processes within 50 years or less of being used

“sell means any arrangement under which electricity is bought and sold, except financial hedge contracts, and sell electricity has a corresponding meaning”.

“6 Meaning of business A and business B

• “(1) Where section 20 uses the term business A, it refers to a business that would have to have its ownership separated under sections 17 to 17G, and the term business B then refers to a business from which business A must be separated under those sections.

  “(2) Where the rest of this Act uses the term business A, it refers to a business that is required to be carried out in 1 company under section 17E, and the term business B then refers to a business that is required to be carried out in another company under that section.

  “(3) Where this Act applies to business A, it applies equally to business B, and vice versa.

  “(4) References to trust A and trust B have corresponding meanings and application.

“7 Meaning of involved

• “(1) For the purposes of this Act, a person is involved—

  • “(a) in a line if the person conveys electricity by the line, or owns or operates, directly or indirectly, the line or any other assets used in connection with the line, either alone or together with its associates and either on its own or another’s behalf:

  • “(b) in any generation if the person generates electricity from the generator, or owns or operates, directly or indirectly, the generator or any other assets used in connection with the generator, either alone or together with its associates and either on its own or another’s behalf:

  • “(c) in selling electricity to a customer if the person sells to the customer either on its own or another’s behalf:

  • “(d) in any of the things referred to in paragraphs (a) to (c) if the person—

    • “(i) carries on a business that does any of those things, either alone or together with its associates and either on its own or another’s behalf; or

    • “(ii) exceeds the 10% threshold in section 8 in respect of a business that does any of those things; or

    • “(iii) has material influence over a business that does any of those things.

  “(2) Involvement has a corresponding meaning.

“7A How to measure involvement

• “(1) This section applies for the purposes of calculating the caps and thresholds referred to in the following sections:

  • “(a) section 17A (connected generation cap):

  • “(b) section 17C (connected customers selling cap):

  • “(c) section 17D (threshold for corporate separation and arm's-length rules).

  “(2) A person is involved in any connected generation only in proportion to the extent of the person’s interest in the connected generation.

  Examples

  LineCo has a 20% shareholding in a joint venture company that operates a connected 100 MW generating plant.

  LineCo is therefore involved in 20 MW of generation. Consequently, 20 MW of generation counts towards the cap on connected generation (50 MW in the case of thermal generation and unlimited in the case of renewable generation).

  LineCo can sell to connected customers all of the total annual nominal MWh capacity of the 20 MW. The selling cap does not change in proportion to the extent of LineCo’s interest in the business selling the electricity. For example, if the business selling the electricity is a joint venture company in which LineCo has only a 30% shareholding, then LineCo’s selling cap is the same as it would have been if LineCo had a 100% shareholding in the selling business.

  Fred is a director of LineCo. That directorship is his only interest in anything. Fred’s involvement in respect of both generation and selling is the same as LineCo’s.

  LineCo must corporately separate and operate the generation and retail businesses at arm's-length (because the 20 MW exceeds the 10 MW threshold). However, it does not need to have separate managers because the 20 MW does not exceed the 30 MW threshold for separate managers in the arm's-length rules.

• “(da) person A is a limited partnership or an overseas limited partnership and person B is a general partner or a limited partner who takes part in the management of the limited partnership (within the meaning of the Limited Partnerships Act 2008); or”.

“Ownership separation

“17 Ownership restrictions

• “(1) The purpose of this section is to prevent a person being involved both in a line, and in generation or supply, in certain circumstances.

  “(2) It is a contravention of this Part if a person has an involvement that is a breach of either or both of the following:

  • “(a) the connected generation cap:

  • “(b) the connected customers selling cap.

“Connected generation and connected customers selling caps

“17A Connected generation cap rule

• “(1) The connected generation cap is breached by a person if—

  • “(a) any of the person’s connected generation with a capacity greater than 5 MW in total (determined according to nameplate or nameplates) was commissioned before 20 May 2003; or

  • “(b) the person’s connected generation has a total capacity (determined according to nameplate or nameplates) that exceeds the greater of—

    • “(i) 50 MW; or

    • “(ii) 20% of the average of the maximum demand, in the immediately preceding 3 financial years, on the local network area.

  “(2) This section is subject to section 17B.

“17B Small or encouraged connected generation

• The following connected generation is not counted for the purpose of section 17A (but is counted for the purposes of section 17D, which relates to the threshold for corporate separation and arm’s-length rules):

  • “(a) generation commissioned on or after 8 August 2001 if the electricity generated from it is produced only from renewable energy sources:

  • “(b) generation commissioned on or after 8 August 2001 if the electricity generated from it is produced partly from renewable energy sources, as long as fossil fuels provide no more of the total fuel energy input for the generator or generators comprising the generation plant in any 12-month period than—

    • “(i) 20%; or

    • “(ii) any larger amount approved by the Minister (on the conditions, if any, he or she thinks fit) after first taking into account whether or not the generation uses new or advanced technology:

  • “(c) generation where the total capacity (determined according to nameplate or nameplates) of the generator is 5 MW or less if the generation was owned or operated, directly or indirectly, by the relevant person—

    • “(i) before 23 June 1998; and

    • “(ii) continuously between that date and the date when the person counts that generation for the purposes of section 17A:

  • “(d) generation that is disregarded under section 19.

“17C Connected customers selling cap rule

• “(1) The connected customers selling cap is breached by a person if the person is involved in selling more electricity to connected customers within a local network area, in total, in a financial year, than the equivalent of the person’s qualifying generation within the local network area.

  “(2) The person’s qualifying generation is the sum of the total annual nominal MWh capacity of the following generation (calculated as if the generation were operated at total capacity (determined according to nameplate or nameplates) for 24 hours for 365 days per annum):

  a + b + c

  where—

  a

  is the person’s connected generation that is counted for the purpose of the connected generation cap in section 17A; and

  b

  is any connected generation referred to in section 17B(a), (b), or (c) in which the person has an involvement; and

  c

  is any generation referred to in section 17B(a) or (b) that is connected to the national grid, if,—

  • (a) on application by or on behalf of the person, the Commission has determined, by notice in the Gazette, that the generation should be treated as being within the local network area of the lines in which the person is involved; and

  • (b) the total capacity (determined according to nameplate or nameplates) of all generation in which the person has an involvement does not exceed 100 MW.

  “(3) The Commission may not determine that any generation should be treated as being within more than 1 local network area.

“Corporate separation and arm’s-length rules

“17D Threshold for corporate separation and arm's-length rules

• A business is a connected electricity business if the business, or a person involved in the business, has an involvement in more than 10 MW (determined according to nameplate or nameplates) of connected generation (including any connected generation referred to in section 17B and any generation that the Commission has determined under section 17C(2) should be treated as being within a local network area).

“17E Corporate separation and arm’s-length rules imposed

• “(1) Every person or persons who carry on a connected electricity business must carry on the business involving the relevant line in a different company from the company that carries on the business involving the qualifying generation or the selling to connected customers.

  “(2) Every person who is involved in either of the connected electricity businesses must comply, and ensure that the person’s electricity businesses comply, with the arm’s-length rules.

“Use-of-systems agreements rules for businesses with 5 MW or more of connected generation

“17F Use-of-systems agreements rules for businesses with 5 MW or more of connected generation

• “(1) This section applies to an electricity business—

  • “(a) that either—

    • “(i) is required to comply with the arm's-length rules; or

    • “(ii) would be required to comply with the arm's-length rules if the threshold for those rules were set at 5 MW of connected generation (instead of 10 MW); and

  • “(b) that sells more than 5 GWh of electricity to connected customers in a financial year.

  “(2) Every director of that electricity business must ensure that—

  • “(a) the business has a comprehensive, written use-of-systems agreement that provides for the supply of line services (to the extent that those services are for the purpose of retailing) to the business that is involved in selling electricity (entered into, in the case of a business to which the corporate separation rule does not apply, as if the businesses were separate legal persons); and

  • “(b) the terms of that use-of-systems agreement do not discriminate in favour of one business and do not contain arrangements that include elements that the business usually omits, or omit elements that the business usually includes, in use-of-systems agreements with parties that are—

    • “(i) connected or related only by the transaction or dealing in question; and

    • “(ii) acting independently; and

    • “(iii) each acting in its own best interests; and

  • “(c) the business operates in accordance with that use-of-systems agreement; and

  • “(d) the business publishes that use-of-systems agreement on an Internet site maintained by or on behalf of the business so that it is available to the public at all reasonable times.

  “(3) The directors of that electricity business must publish on an Internet site maintained by or on behalf of the business, so that it is available to the public at all reasonable times, a certificate, signed by those directors, stating whether or not, in the preceding calender year,—

  • “(a) the terms in the use-of-systems agreement are a true and fair view of the terms on which line services were supplied in respect of the sales to which the agreement relates during that year; and

  • “(b) this section was otherwise fully complied with during that year.

  “(4) Every director commits an offence who—

  • “(a) refuses or knowingly fails to comply with this section; or

  • “(b) publishes a use-of-systems agreement or a certificate knowing that it is false or misleading in a material particular.

  “(5) Every director who commits an offence under subsection (4) is liable on summary conviction to a fine not exceeding $200,000.

“Exemption for Transpower

“17G Exemption for Transpower New Zealand Limited for purpose of deferring investment in national grid

• “(1) In this section, unless the context otherwise requires, Transpower means Transpower New Zealand Limited and any subsidiary of or successor to that company.

  “(2) This section applies if, and to the extent to which, Transpower contracts with another person for that person to generate electricity for the purpose of deferring the need for investment by Transpower in the national grid.

  “(3) Transpower is not involved in that person’s electricity generation for the purposes of this Act.”

“Scope of application of rules in this Part”.

• “(gb) that person is involved in the generation of reserve energy that is in accordance with the terms and conditions for that reserve energy set by the Commission, as those terms are defined in the Electricity Act 1992; or

• “(gc) that person is involved in the generation of electricity that is solely for the person’s own consumption or for the consumption of that person’s associates; or

• “(gd) that person is involved in the generation of electricity that does not have a total annual nominal capacity greater than 5 GWh per annum (determined according to nameplate or nameplates); or

• “(ge) that person is involved in selling no more than 5 GWh of electricity to connected customers within a local network area, in total, in a financial year; or”.

• “(1A) For the purposes of this Act, no account is to be taken of a person’s involvement in a line that—

  • “(a) is not connected, directly or indirectly, to the national grid:

  • “(b) conveys electricity only from a generator to the national grid or from the national grid to a generator:

  • “(c) conveys less than 5 GWh per annum:

  • “(d) conveys electricity solely for the consumption of a person who is involved in the line or for the consumption of its associates:

  • “(e) conveys electricity (other than via the national grid) only from a generator to a local network or from a local network to a generator:

  • “(f) conveys electricity mostly in competition with another line or lines operated by another electricity business that is not an associate of a person who is involved in the first line, provided that the competition is actual competition and not potential competition.”

• “(3) This section does not apply to a contravention of section 17D or 17E (corporate separation and arm’s-length rules) or 17F (use-of-systems agreements).”

• “(4) This section does not apply to a contravention of section 17D or 17E (corporate separation and arm’s-length rules) or 17F (use-of-systems agreements).”

• “(ca) section 88A (when undertaking as to damages not required by Commission):”.

“70A Disclosure as to electricity sold to connected customers within local network area

• “(1) Every person who sells electricity to connected customers must provide to the Commission, as soon as practicable after the end of each financial year, a statement that—

  • “(a) shows the calculation of the person’s qualifying generation in respect of that financial year; and

  • “(b) sets out how much electricity the person sold to connected customers during that financial year; and

  • “(c) includes a certificate, signed by the directors of the electricity business, stating whether or not the quantity of electricity the person sold to connected customers during that financial year exceeded the limit set out in section 17C.

  “(2) The statement must be in the form prescribed by the Commission from time to time.

  “(3) The statement must be audited by an independent chartered accountant.

  “(4) The statement must be published on an Internet site maintained by or on behalf of the electricity business so that it is available to the public at all reasonable times.

  “(5) Every person commits an offence who—

  • “(a) refuses or knowingly fails to provide the statement to the Commission; or

  • “(b) provides the statement to the Commission knowing that it is false or misleading in a material particular.

  “(6) Every person who commits an offence under subsection (5) is liable on summary conviction to a fine not exceeding $200,000.

“70B Directors must report compliance with arm’s-length rules

• “(1) Each director of a business to which the arm’s-length rules apply must provide to the Commission, no later than 31 March in each year, a statement confirming whether or not the director has complied with all of the arm’s-length rules during the preceding calendar year.

  “(2) The director must publish that statement on an Internet site maintained by or on behalf of the business so that it is available to the public at all reasonable times.”

• “(3) In this Part, unless the context otherwise requires,—

  “electricity business means an electricity lines business or an electricity supply business or an unseparated electricity business

  “electricity lines business has the same meaning as in section 57DAA

  “electricity supply business has the same meaning as in section 57DAAB

  “involved has the same meaning as it did in section 7 of the Electricity Industry Reform Act 1998 before the enactment of the Electricity Industry Reform Amendment Act 2008.

• “(4) In relation to sections 57DAA and 57DAAB,—

  • “(a) limitations, exclusions, or exemptions under those sections may be applied cumulatively; and

  • “(b) references to an activity being carried out only or solely for a particular purpose or in a particular way must not be read as excluding reliance on any other limitation, exclusion, or exemption in either of those sections.”

“57DAA Meaning of electricity lines business

• “(1) For the purposes of this Part, electricity lines business—

  • “(a) means a business that conveys electricity by line in New Zealand; and

  • “(b) includes the ownership or operation, directly or indirectly, of lines in New Zealand or any other core assets of an electricity lines business.

  “(2) None of the following activities brings a person within subsection (1):

  • “(a) conveying, together with its associates (if any), less than 2.5 GWh per annum:

  • “(b) conveying electricity solely for its own consumption or for the consumption of its associates:

  • “(c) conveying electricity only from a generator to the national grid or from the national grid to a generator:

  • “(d) conveying electricity (other than via the national grid) only from a generator to a local distribution network or from a local distribution network to a generator:

  • “(e) conveying electricity by lines that are owned or operated by a business that also owns or operates a generator which generates electricity solely for the consumption of a local community, where both those lines and that generator are not connected, directly or indirectly, to the national grid:

  • “(f) conveying electricity only by a line or lines that are mostly in competition with a line or lines operated by another electricity lines business that is not an associate of the person, provided that the competition is actual competition and not potential competition:

  • “(g) owning or operating, directly or indirectly, lines referred to in any of paragraphs (a) to (f) or any other core assets of an electricity lines business used in connection with those lines.

  “(3) Terms used in this definition have the same meanings as they did in the Electricity Industry Reform Act 1998 before the enactment of the Electricity Industry Reform Amendment Act 2008.

“57DAAB Meaning of electricity supply business

• “(1) For the purposes of this Part, electricity supply business—

  • “(a) means a business that—

    • “(i) sells electricity in New Zealand:

    • “(ii) sells financial hedges for risks relating to the price of electricity in New Zealand:

    • “(iii) generates electricity in New Zealand:

    • “(iv) trades in rights to sell or generate electricity in New Zealand; and

  • “(b) includes the ownership or operation, directly or indirectly, of a generator in New Zealand or any other core generation assets; and

  • “(c) includes the ownership or operation, directly or indirectly, of any core assets of an electricity retail business, which include—

    • “(i) the customer database relating to, and used for the purposes of, an electricity retail or electricity trading business; and

    • “(ii) the benefit of a contract to sell electricity; and

    • “(iii) the benefit of an undertaking from any other electricity supply business not to compete with the business.

  “(2) None of the following activities brings a person within subsection (1):

  • “(a) generating or selling less than 2.5 GWh per annum:

  • “(b) generating or selling electricity solely for its own consumption or for the consumption of its associates:

  • “(c) generating electricity solely for the consumption of a local community, where—

    • “(i) the generator is owned or operated by a business that also conveys electricity by line; and

    • “(ii) both those lines and that generator are not connected, directly or indirectly, to the national grid:

  • “(d) selling electricity that is generated at a generator referred to in paragraph (c) or subsection (3):

  • “(e) generating electricity from distributed generation, and selling the electricity generated, if—

    • “(i) the generating capacity of the distributed generation is no more, at any one time, than the greater of 5 MW (determined according to nameplate or nameplates) and 2% of the maximum demand, in the immediately preceding financial year, of the lines to which the distributed generation is connected; and

    • “(ii) the distributed generation is owned or operated by a business that also conveys electricity by line and that distributed generation is connected to those lines:

  • “(f) selling financial transmission rights that hedge risks arising from the effects of losses and constraints on the national grid:

  • “(g) owning or operating, directly or indirectly, a generator referred to in any of paragraphs (b) to (f) or subsection (3) or any other core generation assets used in connection with those generators.

  “(3) A person may, without coming within subsection (1), generate electricity at a generator or generators that are existing, and capable of generating electricity, as at 23 June 1998, if the total generating capacity (determined according to nameplate or nameplates) of the business, together with its associates (if any), is 5 MW or less.

  “(4) Transpower New Zealand Limited, and any subsidiary of or successor to that company, may, without coming within subsection (1), contract with an electricity supply business for that electricity supply business to generate electricity for the purpose of deferring the need for investment by Transpower New Zealand Limited, or any subsidiary of or successor to that company, in the national grid.

  “(5) For the purposes of subsection (2),—

  “financial transmission right means a financial instrument issued by the real time co-ordinator of electricity supply and demand in New Zealand that—

  • “(a) is funded exclusively by the difference between purchaser payments and generator receipts on the sale and purchase of electricity in the wholesale market that arises from the effect of losses and constraints on the national grid; and

  • “(b) entitles the holder to receive, or requires the holder to make, payments in accordance with a formula based on prices for quantities of electricity at 1 or more points on the national grid

  “financial year means a period of 12 months ending on 31 March

  “system means all of the works over which a business conveys or intends to convey electricity.

  “(6) Other terms used in this definition have the same meanings as they did in the Electricity Industry Reform Act 1998 before the enactment of the Electricity Industry Reform Amendment Act 2008.”

• “(1) The Minister may, by notice in the Gazette, declare an electricity generator to be an electricity operator for the purposes of this Act, or any provision or provisions of this Act, if the Minister is satisfied—

  • “(a) that the declaration is necessary to enable the person to commence or carry on an activity as an electricity generator; and

  • “(b) that the business interests in respect of which the declaration is made are confined to any or all of the works necessary to convey the electricity generated to an electricity installation owned by an electricity generator, electricity distributor, or a consumer.”

• “(2) The Minister must, as soon as is reasonably practicable, by notice in the Gazette, declare that a person ceases to be an electricity operator on a date stated in the notice if the Minister is satisfied that the person is no longer carrying out any of the activities referred to in subsection (1).”