NSW Electricity Reform Taskforce
Electricity Reform Statement
May, 1995
Presented by the Honourable Michael Egan
Treasurer of New South Wales & Minister for Energy
EXECUTIVE SUMMARY 1. INTRODUCTION
1.1 Objectives Of Reform
1.2 Policy Framework
1.2.1 Generation Sector
1.2.2 Distribution Sector
2. REFORM PROPOSALS
2.1 Overview
2.2 Financial And Physical Shape of Generation
2.2.1 Generation Structure
2.2.2 Financial Structure
2.3 Financial and Physical Shape of Distribution
2.3.1 Retail/Network Separation
2.3.2 Amalgamation of Distributors
2.3.3 Commercial Framework
2.4 Transmission
2.5 System Control & Market Operation
2.6 Regulation
2.7 Relationship to National Reform Program
2.8 Improved Environmental Outcomes
2.8.1 Environmental Impacts Of The Electricity Inductry
2.8.2 Electricity and Energy Services
2.8.3 Supply Side Reform
2.8.4 Efficiencies On The Demand Side
2.8.5 Sources Of Market Failure
2.8.6 Summary Of Environmental Initiatives
3. IMPLEMENTATION PROGRAM
3.1 Overview
3.2 Coordination And Policy Development
3.3 Generation
3.4 Distribution
3.5 Environmental Issues
3.6 Legislative Program
3.7 Timetable
3.7 Relationship to National Reform Program
APPENDICES
1. References
2. Summary Statistics
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EXECUTIVE SUMMARY
Reform Aims
The major aims of the Government's Reform Strategy are threefold:
- to promote the interests of consumers in New South Wales, through the provision of low cost and safe electricity at a high level of reliability;
- to recognise the major impact that the electricity industry has on the environment and to ensure that the reforms maximise environmental outcomes, support environmentally friendly technologies and promote energy efficiency; and
- to reduce the costs of electricity production through market based incentives rather than via heavy handed government regulation. This requires that the industry structure gives wholesale and retail customers in New South Wales real choices between competing suppliers and having market arrangements that are consistent with and support the development of the national markets.
This will only occur however, if customers can exercise a real choice between alternative sources of supply.
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Criteria for Reform
In order to achieve these objectives, the following criteria will need to be met:
- consistency with National Competition Policy;
- effective Competition;
- improved Environmental Quality;
- continued Public Ownership; and
- managed Reform Process.
The Need for Reform
Despite a general increase in productivity levels by the electricity industry since the mid 1980's, a number of reports have highlighted the scope for further improvement in performance. For example, the Government Pricing Tribunal's Interim Report on Paying for Electricity, indicated that productivity improvements of at least 20% were possible over the next five years, providing the basis for significantly lower prices.These estimates take no account of the costs carried by the community as a consequence of the monopolistic centrally planned system that has provided more power stations than were required. A key requirement for these reforms is that there should be put in place a system which, firstly, substantially reduces the likelihood of such mistakes re-occurring and, secondly, transfers the risks of over-capacity from consumers to the parties who make the investment decision, that is, the generators.
Instead of consumers serving the industry, the reforms to be put in place will put power back in the hands of consumers.
Reform Proposals
Generation
- The Government is committed to structural reform of the generating sector.
- An expert Working Group, chaired by Professor Hilmer, the Chairman of Pacific Power, will be established to advise the Government. The Working Group will have regard to the reform aims and criteria and the States obligation under the Council of Australian Governments' agreement on implementation of national competition policy, whether and how Pacific Power might be disaggregated. The Working Group is to report by mid August 1995. Under all approaches coal will be separated from generation and corporatised.
- It is expected that contracts between generators and distributors will be used to assist in managing the transition into a fully competitive wholesale market.
- The Snowy Mountains Hydro Electric Authority will be corporatised and will trade independently in the market.
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Transmission
- The Electricity Transmission Authority (ETA) will remain a separate entity.
- During an interim period, between the time that a NSW market is established and the commencement of the national market, the ETA will perform market operation and settlement functions.
Distribution & Retail Supply
- The existing 25 Electricity Distributors will be amalgamated into a small number of distributors and restructured.
- Distributors will be corporatised and operate under a commercial framework. This will cover aspects such as rate of return, asset valuations, capital structure and financial distributions to government.
- Each Distributor will have two subsidiary corporations, dealing separately with distribution network ("wires") and retail supply ("energy trading") operations. This structure reflects the distinctive nature of the two businesses: network being a regulated monopoly and retail supply being subject to open market competition.
- Electricity consumers will be able to exercise choice of energy supplier, as retail competition develops.
Regulation
Many of the regulatory changes that will be required in New South Wales have already been foreshadowed in the move to the national market. However, some regulatory arrangements will remain a State responsibility.Areas where State based regulation will be required, at least in the interim, include:
- regulation of the distribution and transmission sectors, which retain natural monopoly characteristics;
- oversight by the Government Pricing Tribunal of those retail prices which are currently subject to cross subsidy;
- application of the National Grid Management Council's (NGMC's) Code of Conduct wherever possible for technical and economic regulation; and
- environmental regulation by the Environmental Protection Authority, in accordance with the existing arrangements
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Environmental Outcomes
The electricity industry has major impacts on the environment, both in the fuel production and generation processes, and in electricity transmission and distribution.Reform of the NSW electricity industry will produce significant improvements in environmental quality. Investment in renewable generating technologies will be positively encouraged both through market incentives and direct Government support.
Government policy will also ensure that environmental benefits from the demand side are realised. The market will provide strong incentives for retail suppliers to broaden their focus to the whole energy services market.
A major policy initiative will be the establishment of a Sustainable Energy Fund, which will be used to support a wide range of activities from information provision to direct funding of demand side processes.
In consultation with the expert Working Group, the Government will be refining its policies towards renewable generating technologies, cogeneration projects, landfill and coal-bed methane generation projects, and greenhouse co-operative agreements with industry with a view to optimising environmental outcomes.
Reform Process
Structural Reform Working Group
The structural reform of the generation side of the industry will be determined by the Government drawing upon the advice of the expert Working Group chaired by Professor Hilmer. The Working Group is to have representatives from the Central Agencies, and the board of Pacific Power, and will commission work from expert consultants. The Working Group will report by mid August on the question of the disaggregation of Pacific Power in order to facilitate legislation for September and will finalise all other advice by no later than December, 1995.On the distribution side there will be a period of review and consultation with the industry prior to a determination of the number of distributors. However, the Government is committed to a substantial reduction in the number of distributors.
Legislation
A legislative program is required to give effect to the reforms. This will have three main parts:
- enabling legislation introduced into the current sitting of Parliament, which prepares the existing industry bodies for reform and provides the Minister for Energy with the requisite powers to implement reform.
- generic industry legislation, to be introduced into the Budget session of Parliament, which will establish a coherent legislative framework for the electricity supply industry and its constituent parts.
- corporatisation legislation, also to be introduced into the Budget session of Parliament, which will establish the new corporatised generation and distribution bodies for operation in the interim State market and national electricity market.
The first round of legislative amendments establish the preconditions which will enable the Government to implement its plans for reforming the electricity supply industry. The most significant provisions in the legislation are:
- The Electricity Commissioners of Pacific Power will be replaced by an interim Board of 4 to 7 Directors, including an employee representative. A newly created position of Chief Executive will be established;
- Electricity Distributor Boards will be reduced in size and will be restructured to prepare them for the demands of implementing the reform of the distribution sector. The legislation provides for the appointment of new Boards or an interim Administrator. It will also be possible for the Minister to formally amalgamate existing distributors. The direction of reform will require a substantial reduction in the number of distributors. This will be implemented following a period of review and consultation with the industry;
- The functions of the Electricity Transmission Authority (ETA) will be expanded to include the development and operation of an interim State wholesale electricity market. The composition of the ETA Board will be reviewed accordingly; and
- A specific provision will be added to the responsibilities and corporate charters of the distributors, Pacific Power and the Electricity Transmission Authority requiring the Boards of those bodies to respond to and implement Government policy on structural reform.
These initial legislative changes will leave the commercial and operational capacities of the bodies untouched during the transition period, in order to ensure the continued safe and effective operation of the industry. Once these legislative changes are introduced, industry reform can proceed rapidly, providing an opportunity for New South Wales to achieve the benefits which the reforms will bring.
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The Industry's Role
The electricity reform strategy of the NSW Government envisages that the industry itself, through the Boards of the various industry bodies, will play a key role in the detailed development and implementation of the reforms. The successful implementation of the reform program depends critically on the managers and employees within the industry accepting the challenges and opportunities which the reforms present.Accordingly, the Government is not proposing to run a heavy handed implementation process, but will limit its direct involvement to the determination and clarification of policy and the overall coordination of reform. Within the policy framework set by the Government, responsibility for detailed implementation will rest with the acknowledged experts in the industry, the industry managers.
A vital requirement for successful implementation will be effective performance based contracts with industry management so as to ensure the reforms have industry support.
The industry will be expected, within the broad framework for structural reform set by the Government, to develop proposals on the detail of the reforms and how they can best be implemented within the time-frames established.
Once an implementation program has been agreed with Government, the management of that program will become the responsibility of the Directors of the relevant industry body.
As set out in the Monitoring Policy for Government Trading Enterprises (GTEs), the role of Directors is one of representing the interests of the shareholder (ie Government) to the management, rather than representing the interests of the GTE management to the Government.
Given the size and economic significance of the industry and the complexity of the strategic issues involved, participation in the reform process will represent a significant challenge to Directors and executive management. A clear commitment to the Government's key structural reforms and its expectations of implementation within a short time horizon is required, in order to deliver the benefits of higher productivity and competitive prices. Boards, and in particular their Chairpersons, will need to be closely involved in the reform process if they are to carry out their roles as effective agents for change.
1. INTRODUCTION
At the April, 1995 meeting of the Council of Australian Governments (COAG) the NSW Government, along with the other States, Territories and the Commonwealth, agreed to the implementation of a package of National Competition Policy reforms that will increase the competitiveness and growth prospects of the national economy.These reforms are expected to increase real Gross Domestic Product (GDP) by 5.5% per annum, allow increased consumption of $1,500 per household and create a net 30,000 more jobs. The biggest single source of economic benefit comes from reform of the electricity and gas sectors which accounts for up to 25% of the total benefits of competition reform.
As part of the Agreement to Implement the National Competition Policy and Related Reforms, New South Wales reaffirmed its commitment to the National Grid Management Council and the establishment of a National Electricity Market, as agreed at the July, 1991 Special Premiers' Conference.
This market will initially cover the interconnected states of New South Wales, Victoria and South Australia as well as the Australian Capital Territory. Eastlink, a major transmission inter-connection between New South Wales and Queensland, is expected to come into operation within the next 4 years. These reforms are occurring in the context of a worldwide trend towards competitive market structures for electricity, as evidenced by developments in, for example, the United States, New Zealand, Norway and the United Kingdom.
As with all industries, the electricity industry must adapt and evolve in response to changes in the external environment. As a provider of essential infrastructure, electricity has reached the stage of a mature industry in advanced economies like Australia. However, developments in technology affecting production choices, advanced control systems and the availability and cost of information have radically changed the basis on which electricity systems can be organised.
From a centralised and highly integrated structure, the industry has progressively become more open, beginning with the separation of functions such as generation and transmission. Expanding the opportunities for customer choice is the next logical step.
A competitive market structure will provide incentives for more efficient operation in the short term and improved investment decisions in the future. In particular, the major decisions that affect the level of resources used by the industry will be driven by the retail sector responding to consumer demands, rather than by centralised generation monopolies as has occurred in the past. This will improve the access afforded to more environmentally sympathetic generation technologies and improve the incentives for demand management and energy conservation. Indeed, the technological developments in these areas are making the present structure of the industry increasingly difficult to maintain.
New South Wales established an early lead in understanding how a competitive electricity market would work, principally through ELEX, a competitive auction system that determined the dispatch of Pacific Power's generation plant. Since the introduction of ELEX within Pacific Power in July, 1992 , New South Wales has, however, failed to develop a reform strategy for the whole industry and allowed itself to be overtaken by developments in Queensland and Victoria. Continuing to stand still would place New South Wales at a distinct disadvantage in the national market. It is time to take the next leap in productivity by establishing a commercial, highly competitive New South Wales industry. The Government is committed to establishing an industry that can respond to the challenges of a national market to the benefit of consumers, the environment and the economic development of the State.
1.1 OBJECTIVES OF REFORM
The demand for electricity is determined by the demand for energy services such as cooking and lighting within homes, and as an input to the production process of commerce and industry. The objective of electricity reform is to establish a market structure that drives productivity improvements and leads to efficient prices, thereby lowering the true costs of energy services and allowing an expansion in economic output and employment.This will only occur, however, if customers can exercise a real choice between alternative sources of supply.
In order to achieve these objectives, the criteria for reform are:
Consistency with National Competition Policy - which requires that the competitive sectors of the industry are separated from the natural monopoly elements and that operational and regulatory functions are separated. Reforms in New South Wales will facilitate the development of an open market for electricity across the interconnected States so that State borders become irrelevant to the trading of electricity;
Effective Competition - which is essential for keeping costs down and giving consumers the benefit of lower prices. This requires that participants (in both the generation and retail sectors) are not able to use their market power to reduce the pressure to maximise productivity or to distort prices. Participants should be able to exploit economies of scale and scope, be commercially viable and operate under a commercial governance structure. Regulatory structures and processes need to be transparent and predictable;
Environmental Quality - will be improved though the removal of existing barriers to the adoption of environmentally superior demand and supply side technologies and by giving freedom of choice to buyers of electricity. In addition, the reform strategy will allow for the explicit encouragement of environmentally superior production and consumption where market failure is evident;
Public Ownership - of key assets in the industry, specifically, generation, transmission and distribution, is to be maintained on the basis that it is the structure of the market rather than the ownership of the assets that drives efficiency improvements; and
A Managed Reform Process - so as to minimise disruption to the industry. Transitional mechanisms will be employed to cap the costs of reform, manage structural changes and ensure an equitable allocation of benefits. The existing rights and entitlements of all employees, including transferability between entities in the industry, will be fully preserved.
Despite a general increase in productivity levels by the electricity industry since the mid 1980's, a number of reports have highlighted the scope for further improvements in performance. The Bureau of Industry Economics has estimated a productivity gap between the NSW industry and investor owned utilities in the United States of over 20%. The Government Pricing Tribunal's Interim Report on Paying for Electricity indicated that productivity improvements of at least that order of magnitude were possible over the next five years, providing the basis for significantly lower prices.
These estimates take no account of the costs carried by the community as a consequence of the monopolistic centrally planned system that has provided more power stations than were required. The present value cost of excess generating capacity in New South Wales has been conservatively estimated at more than $1 billion, a figure which would be greatly increased if the cost to the environment were properly included. This burden will be carried by the people of New South Wales for many years to come. While it cannot be reversed, a key objective of the reforms is to put in place a system which, firstly, substantially reduces the likelihood of such mistakes reoccurring and, secondly, transfers the risks of overcapacity from consumers to the parties who make the investment decision, that is, the generators.
Instead of consumers serving the industry, the reforms to be put in place will put power back in the hands of consumers.
Box 1 ... Retail Prices
Average retail prices are projected to reduce by 20% in real terms from 9.3 c/kWh in 1995 to 7.4c/kWh in 2000 (expressed in 1995 price levels). The graph below illustrates the projected cost break down of electricity in 1995 and 2000, expressed in cents per KWh sold. It highlights the impact of reduced generation costs on retail prices.
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The major aims of the Government's Reform Strategy are threefold:
- to promote the interests of consumers in New South Wales, through the provision of low cost and safe electricity at a high level of reliability;
- to recognise the major impact that the electricity industry has on the environment and ensure that the reforms maximise environmental outcomes, support environmentally friendly technologies and promote energy efficiency; and
- to reduce the costs of electricity production through market based incentives rather than via heavy handed government regulation. This requires that the industry structure gives wholesale and retail customers in New South Wales real choices between competing suppliers and having market arrangements that are consistent with and support the development of the national markets.
- industry participants should be of sufficient size to retain any possible economies of scale, where they currently exist, and realise those in sectors where there is the potential to reduce costs;
- the organisations created from the structural reforms should be commercially viable, in the sense that they have the ability to earn a commercial return on their assets and can expand their operations and finance new investment if required;
- the number and relative size of the market participants should provide effective competition, with each participant facing pressure to improve productivity in order to remain viable (rather than being able to increase or distort prices); and
- as far as possible, the market structure should allow non-traditional generation and end use technologies to compete on an equal basis with the current stock of coal-fired thermal generation and end use appliances.
1.2.1 GENERATION SECTOR Competitive Outcomes
Pacific Power currently has 12150 MW of operating capacity, excluding dry stored capacity and the entitlement to Snowy Mountains Hydro Electric Authority (SMHEA) capacity. This compares with generating capacity in Victoria of 7155 MW (excluding its SMHEA entitlement) and South Australia with 2361 MW. Queensland, which will not form part of the national market until interconnection occurs, has 5912 MW capacity.
Within the interconnected south east region of Australia, Pacific Power has 48% of the capacity in the market, including SMHEA. By contrast, Victoria has separated its generation sector into five entities and also has two privately controlled generators. The largest generating entity in Victoria has 2000 MW capacity, which represents 8% of total interconnected system capacity. If South Australia remained as a single entity, it would have 9% of interconnected system operating capacity. New South Wales can be expected to have the largest amount of generation capacity, given that it represents the largest regional market. However, a single generation entity of this size could exercise a significant degree of market power to the detriment of New South Wales consumers, particularly given the constrained nature of the interconnectors at the State borders and the marginal costs of transmission losses.
The possibility of significant market power is consistent with the experience gained from the National Grid Management Council's National Market Trial, which has been reviewed in a report prepared for the Commonwealth Department of Primary Industries and Energy.
This issue needs to be carefully addressed to ensure the successful operation of the national electricity grid.
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Environmental Outcomes
Effective competition in the generation sector will be an essential part of ensuring that the reforms optimise outcomes for the environment. A high level of competition will ensure that the industry operates with the highest level of efficiency, and therefore that greenhouse gas and other polluting emissions are reduced.
Effective competition will shift the historic bias that the industry has had away from large-scale coal based generating technologies, and towards small-scale renewable and other environmentally friendly technologies. In fact, new investment in generating capacity is likely to be undertaken by a wide range of industry participants, with a major role being played by retail suppliers looking to diversify their sources of supply through small scale capacity investments. Moreover, the market will create incentives for participants to innovate in their use of generating technologies.
Barriers to entry for non-traditional technologies will be removed, and a Sustainable Energy Fund will be used to provide support where appropriate.
Furthermore, the strengthening of the price signals in the market, with the removal of cross-subsidies and the revelation of costs, will create niche opportunities for some generation technologies.
Economies of Scale
Pacific Power is the major generator in New South Wales and provides over 90% of the State's electricity needs. The remainder is provided by the SMHEA and a few small independent generators. Pacific Power's generating capacity is provided through seven black coal-fired thermal power stations ranging in size from 600 MW at Munmorah (with a further 600 MW in dry storage) to 2640 MW at Bayswater and Eraring. Supplementary capacity is provided by gas turbines and a small amount of hydro electric capacity.
The regional proximity of the coal-fired generating plants and the sharing of resources and fuel sources by those adjacent plants lends itself to the establishment of regionally-based generation entities, which retain the operating economies of the single entity generator. At the same time, multiple generators would provide a more diverse base for competition in the national market.
Benchmarking analysis of 153 generation utilities with 477 plant in 11 countries, indicates that the minimum efficient size for generation businesses is in the region of 1000 MW to 5000 MW while the average size of generators displaying constant returns to scale is 3100 MW.
Commercial Viability
A scoping study into the commercial viability of various generation structures, undertaken by BT Corporate Finance Ltd for the NSW Treasury, indicated that three New South Wales generation entities would be commercially viable under a wide range of wholesale price scenarios.
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1.2.2 DISTRIBUTION SECTOR Economies of Scale
There are currently 25 distributors in New South Wales ranging in size from Tenterfield (2,400 customers and 20 GWh sales) to Sydney Electricity (over 1 million customers and 16,000 GWh sales). The largest four distributors account for 80% of electricity sales. Fourteen of the 25 distributors on average sell less than 1% each of the state's total demand. The average size of the 21 rural distributors (29,000 customers and 400 GWh sales) is very small by interstate and international standards.
Evidence in New Zealand shows an increasing trend towards the amalgamation of distributors. Recently, a spate of mergers and takeovers have taken place with economies of scale providing savings in controllable costs reported at 20%.
In the United Kingdom, most analysts believe that mergers/acquisitions within the distribution industry could produce additional controllable cost savings in the order of 20-25%.
A reduced number of distributors is also supported by the available evidence on economies of scale. NSW Treasury commissioned London Economics in late 1994 to report on economies of scale in the generation and distribution sectors. Based on an analysis of 119 distribution utilities from the United States, United Kingdom and Australia, they concluded that the minimum efficient size for distributors was between 12,000 GWh and 30,000 GWh of sales per annum, although the range for distributors displaying constant returns to scale went as low as 2000 GWh per annum. In terms of customers, the minimum efficient size was between 0.5 million and 1.25 million, although again the range for constant returns to scale went as low as 94,000 customers.
The research indicated that economies of scale in distribution are primarily driven by customer density and sales per customer.
From the analysis of efficiency levels in the distribution sector the Government Pricing Tribunal concluded that a significant gap exists between NSW distributors and comparable Queensland distributors. For example, by comparing NSW metropolitan distributors with the South East Queensland Electricity Board (SEQEB), the Tribunal identified cost savings of $100 million if the metropolitan distributors were able to match SEQEB's operating cost performance. International comparisons undertaken for the Tribunal added weight to the evidence of significant gaps in the performance of NSW distributors and led the Tribunal to propose 'that an efficiency target of a 20% to 30% real operating cost reduction be incorporated in distributors' plans'. Efficiency improvements of at least this order should also be achieved by the rural distributors.
Commercial Viability
In the current regulated environment, returns in the distribution sector, at approximately 4% return on assets before tax, are low. In a commercial environment, where there are alternative and competing demands for investment funds, these returns would be unacceptably low. The ability to earn a commercial return is a prerequisite for efficient use of capital resources. Viability for retail suppliers and distributors in the competitive electricity market will depend on their capacity to withstand the loss of customers to competitors, the marketing capability to gain a larger customer base, the expertise and resources applied to trading in the wholesale market (both in contract and spot market forms) and the technical ability to maintain reliable supply at an efficient level of operating and capital cost. Size will be an important factor in determining effectiveness in most of these areas.
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Competitive Outcomes
For electricity consumers to achieve the benefits from competition, namely reduced prices in the retail market and fair market access to alternative generating technologies, there must be a robust level of competition in the wholesale market between generators and distributors. Competition derives from two sources: firstly, competition among retailers on the demand side of the wholesale market and, secondly, competition based on the countervailing market power of retailers relative to generators.
In reviewing structural options, it is worth considering the relative number and size of interstate participants in the market. Victoria has five retailers, South Australia has one and Queensland has seven. From the wholesale sellers perspective, Victoria has five generators and South Australia has one.
The existing structure of electricity distributors in New South Wales would not produce competitive outcomes in a wholesale market where the dominant distributor (Sydney Electricity) has over 40% of the State market and 14 of the 25 distributors have less than 1% each. Current differences in size will be further exacerbated as these distributors compete for market share in a larger national wholesale market, where distributors in the other states already command greater power in the wholesale market than the majority of NSW distributors. As the market develops, the customer base of distributors will become progressively contestable by other retailers (including new entrants into the retail electricity market).
The majority of existing NSW distributors do not have the resources and expertise to trade in the electricity spot market and do not have the market power to negotiate long term supply contracts at the lowest price on behalf of their customers.
Alliance buying, whereby a number of distributors form a single purchasing entity in the wholesale market, is at best only a partial solution. It may overcome some of the shortcomings in the wholesale trading activity, but it adds to complexity and transaction costs and still leaves load management issues uncoordinated. Further it does not address the total cost of supply to the end customer, particularly the savings in operating and capital costs which can be achieved through the amalgamation of smaller distributors.
New South Wales has a unique opportunity to reform the electricity supply industry prior to the advent of a nationally competitive market and can position the industry to produce efficient outcomes for customers. Implementation of partial solutions would not deliver those results.
The reform package addresses the commercial and regulatory framework within which the industry operates. It establishes a structure consistent with that framework and the requirements of a competitive wholesale and retail market.
Energy Conservation and Environmental Outcomes
A key aspect of the proposed reforms for distributors is the separation of the retail supply activity from the distribution activity. This will enable retail suppliers to broaden their focus beyond the supply of electricity to servicing their customers' diverse energy requirements. As distributors move away from providing a commodity to supplying more complete energy solutions, decision making will progress to assessments of energy supply options and other energy services.
By closely monitoring their customers' requirements, retail suppliers will be able to match demand with appropriate supply options, ranging from a niche supply perspective to demand management options.
There is growing interest by consumers in energy services. Examples include energy audits, energy management services, technical advice on renewable and other alternative technologies, cogeneration, energy efficient lighting, design and so on.
New alliances between retailers and manufacturers to provide services and products that meet more stringent environmental criteria will provide benefits that go well beyond questions of cost and efficiency in the electricity distribution sector.
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The main functions within the electricity supply industry are:
- generation;
- transmission;
- local distribution; and
- retail supply.
In New South Wales, generation and transmission functions until recently were undertaken by Pacific Power (the Electricity Commission of New South Wales) while distribution and retail supply are performed by distributor authorities.
Competition policy requires that the competitive sectors of the industry are separated from the natural monopoly elements. Regulatory barriers to new entrants in the competitive sectors also need to be removed.
The transmission function within New South Wales was transferred to a separate organisation, the Electricity Transmission Authority, in February 1995.
Figure 2.1
The principal structural reforms to the New South Wales electricity industry are outlined below.
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Generation
- NSW generation will be reviewed by a Working Group, chaired by Professor Hilmer, prior to restructuring and corporatisation. Coal and services will be separated from generation and coporatised.
- Vesting contracts between generators and distributors may be used to manage the transition into a fully competitive wholesale market.
- The Snowy Mountains Hydro Electric Authority will be corporatised and will trade independently in the market.
- The Electricity Transmission Authority (ETA) will remain a separate entity.
- During an interim period, between the time that a New South Wales market is established and the commencement of the national market, the ETA will perform market operation and settlement functions.
- The existing 25 Electricity Distributors will be substantially amalgamated and restructured.
- Distributors will be corporatised and operate under a commercial framework. This will cover aspects such as rate of return, asset valuations, capital structure and financial distributions to government.
- Each Distributor will have two subsidiary corporations, dealing separately with distribution network ("wires") and retail supply ("energy trading") operations. This structure reflects the distinctive nature of the two businesses: network being a regulated monopoly and retail supply being subject to open market competition.
- Electricity consumers will be able to exercise choice of energy supplier, as retail competition develops.
2.2 FINANCIAL AND PHYSICAL SHAPE OF GENERATION
In the competitive sectors of the electricity industry, particularly generation, the move to a market environment can be expected to fundamentally change the allocation of risk between equity holders and customers. In a competitive electricity industry equity holders will bear the market risk of their investment. One of the tests of whether there is an effective level of competition is the degree to which equity holders carry the market risks of their investment. Under a centralised monopoly structure, customers carry the risk of overinvestment since this structure tends to allow prices to increase to cover the cost of over capacity. While prospective investors in the new market can consider what return they require as compensation for the risk they may face, owner Governments will for the first time have the risk inherent in their existing investments reflected in market determined returns and values.
Allowing industry risk to be reflected in market outcomes is central to achieving the benefits of reform. These risks, such as those associated with plant reliability and demand for station output, are present in the industry whether or not there is a competitive market. The market simply puts a value on the level of risk and allows for more appropriate management and, through that, the benefits of more efficient outcomes.
The current level of over capacity in New South Wales and Victoria illustrates the economic costs which can be incurred if a centralised approach to investment is used in an attempt to reduce industry risk. Although the investment decisions that led to the current stock of generation capacity were made a decade ago, the cost even today of the remaining level of over capacity in New South Wales has been estimated to be in excess of $1 billion in present value terms.
Once the market is functioning, Governments which own generating capacity will be fully exposed to the greater business risks facing generators operating in a competitive environment. In order to achieve the expected benefits of reform, it will be important for the holders of generation sector investments not to allow the management of financial impacts during the transitional phase to mask this basic change in their position. In committing to the commencement of a competitive market, the NSW Government, as owner of generation assets, recognises that its experience as an investor in the industry will be determined by commercial outcomes, as it will be for any other investor.
Historically, the governance structure of the distribution section has meant that the Government has tended to rely on the generation sector to provide the great majority of equity returns from the electricity supply industry. This has been facilitated by a regulated Bulk Supply Tariff (BST) paid by distributors to the generator. Under the conditions of a competitive wholesale market, and especially in a situation of over capacity, the market-based wholesale price can be expected to fall below the current BST price. This will reduce profitability in the generation sector, and hence the returns from this sector which Government can expect as shareholder.
During the transition to a fully competitive market, vesting contracts may be used to manage the financial impacts while experience in trading is gained on both sides of the market. Vesting contracts will also smooth the overall wholesale price as it progresses from a regulated price to a market-based price.
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The Government is committed to structural reform of the generation sector and the establishment of effective competition between generators.
On the basis of a desire to maintain firm level economies, establish commercially viable businesses and most importantly, provide wholesale customers with real choice so that there is effective competition, the Government will review generation structure options. Such a review will be undertaken with the objective of maximising the level of competition for the benefit of consumers and taxpayers, and the economic development of New South Wales and Australia. The Table below provides a summary of the generation groups that competed within Pacific Powers' internal ELEX market.
(1993-94)
| Hunter | Central Coast | Western |
|---|---|---|
| 4640 MW Capacity | 4560 MW Capacity | 2320 MW Capacity |
| 908 employees | 1287 employees | 456 employees |
| $3.1 billion assets | $3.1 billion assets | $2.2 billion assets |
| 46% of NSW output | 40% of NSW output | 14% of NSW output |
A significant advantage arising from the maintenance of public ownership of the generation entities is that it provides the opportunity and flexibility to exercise structural options without the dislocation which privatisation would cause. Reform in New South Wales is driven by a desire to see efficient outcomes for consumers, not by a privatisation agenda.
In addition to the review of the structure of generation within New South Wales, discussions are taking place between the New South Wales, Victorian and Commonwealth Governments on the corporatisation of the Snowy Mountains Hydro Electric Authority. Once corporatised the Authority will trade its capacity into the market independently.
A prime consideration of the review of generation will be the extent to which there will be decentralisation of corporate functions and decision making. Under a disaggregated structure it is expected that most corporate functions would be established close to the main power stations, located in the regions of Lithgow/Bathurst, the Hunter Valley and the Central Coast.
Customers in the wholesale electricity market need to be able to exercise a real choice between alternative generators if competition is to be effective.
- A national electricity market will allow wholesale customers (distributors and large electricity customers) to purchase from interstate generators as well as those within NSW. However:
- transmission constraints limit the possible flows of electricity between States which effectively causes the wider south-east Australian market to break into smaller, separate State markets;
- the National Grid Management Council (NGMC) recognises that this will cause differences in electricity prices in different regions and adds to the price risk of contracting between States. The NGMC have advocated additional contracting mechanisms to deal with this problem; and
- transmission losses are added to the prices that consumer pay for their electricity. In Australia, these costs represent a larger proportion of electricity prices than in other countries because of the long distances that electricity needs to be transported.
- In the absence of effective competition in the generation sector:
- distributors will have the incentive to (inappropriately) enter the generation market in an attempt to reduce the market power of generators (as occurred in the UK);
- in the absence of strong regulation, there will be a tendency for these distributors to allocate the risks that they incur in their generation business to smaller electricity customers that are less likely to enter the wholesale market; and
- distributors will pay higher than necessary risk premiums on their contracts or over contract to minimise their exposure to high prices caused by generators acting to maximise profits. This will increase prices to consumers.
- In the event of anti-competitive behaviour, the government will be obliged to re-regulate the potentially competitive wholesale electricity market.
2.2.2 FINANCIAL STRUCTURE
Asset values for generation will be reviewed prior to corporatisation. It is anticipated that fixed asset values will be below current book values, reflecting both the expectation of lower wholesale prices in the market and the current level of excess capacity.Generation will be geared to sustainable commercial levels, commensurate with an A credit rating on a stand alone basis. Given the volatility in wholesale prices, it is proposed that debt gearing levels be maintained at the current relatively low levels of approximately 30%.
2.3 FINANCIAL AND PHYSICAL SHAPE OF DISTRIBUTION
In addition to the wide variation between distributor operating conditions, customer bases, efficiency levels and financial and geographical scales, the four metropolitan distributors (Sydney, Prospect, Orion and Illawarra) have been put on a commercial footing, and are subject to tax and dividend payments and commercial capital structures. In contrast, the 21 rural authorities have inefficient capital structures and relatively weak incentives to minimise the use of capital resources.It is critical that all distributors be provided with a commercial focus and incentives for efficiency improvements, economic investment decisions and cost reflective pricing. A structure is required which takes advantage of opportunities for productivity improvements and results in organisations of sufficient size to effectively operate in a competitive national market.
The reform proposals for the distribution sector incorporate:
- creation of network and retail subsidiaries to effectively separate the monopoly and competitive segments of the existing distribution industry.
- a substantial amalgamation and corporatisation of the existing 25 distributors; and
- establishment of a fully commercial operating environment
2.3.1 RETAIL / NETWORK SEPARATION
The retail and network businesses are quite distinct in their characteristics. The network operator has a natural monopoly and therefore this function will continue to be regulated. In contrast, retailers will face increasing competition as customers are given the choice of alternative retail suppliers. There is commercial risk in the price at which energy can be both purchased and sold, and an ever present risk that customers may transfer to an alternative supplier.The evidence from New Zealand and the United Kingdom is that over time retail supply - a trading business - and distribution - an asset management business - will evolve in different directions as existing retailers merge and new entrants appear. However, it will be necessary to commence the market with the retail function attached to a distributor to enable experience to be gained with market operations and because the data and expertise necessary for the retail function currently resides within distributors.
Retail supply involves purchasing power from generators in the wholesale market and selling it to consumers. It is a high turnover, low margin business and the major requirement of this business is information concerning the energy demands of customers and the current state and prospects in the electricity generation and other energy markets. To provide service to customers a retailer, in competition with other retailers, must offer electricity at a price and on conditions that customers find attractive, and then source the customer's requirements from the wholesale market at the best price possible.
Consolidated NSW retail sales revenue of approximately $3.8 billion is projected in 1994/95. This is sufficient to cover wholesale purchase costs, operating costs and use of system charges from the transmission and network sectors. Competitive pressures are expected to constrain retail profitability to an estimated 1% to 3% of sales revenue.
Retail operating costs mainly comprise labour costs associated with the customer accounting, marketing and wholesale trading functions. Retail operating costs and purchase costs will need to be minimised in order to maintain or increase market share and profitability. The retail supply business will require few physical assets. As a result, depreciation and interest costs will be relatively small.
The network business is a capital intensive, low risk monopoly. Revenue will be determined by a regulated 'Use of System Charge', sufficient to cover the efficient costs of operation plus a commercial return on assets. Regulated revenue capping will drive operating costs to efficient levels. The majority of the distribution sector's $6.7 billion in assets will be allocated to the network sector. It is proposed that debt levels will be reviewed in order to achieve capital structures more commercially appropriate for mature, low risk monopolies.
The graph below illustrates the projected 1994/95 cost breakdown of supplying electricity in NSW. The competitive generation function represents nearly 60 cents of every dollar spent on electricity. By comparison, the monopoly network and transmission sectors account for 30 cents and 8 cents in every electricity dollar respectively. The competitive retail function accounts for less than 3 cents in every electricity dollar.
It is proposed that each distributor is corporatised in the form of a non-trading holding entity which will own two subsidiary agencies. One of the stand alone subsidiaries will conduct the network operations of the distributor and the other will conduct the retail operations of the distributor. This will separate the regulated monopoly of the network distribution business from the market-based retail business.
As the market develops, new entrants will emerge in the retail supply area and existing retailers may merge. At that stage, a holding company structure may no longer be appropriate.
2.3.2 AMALGAMATION OF DISTRIBUTORS
A competitive electricity market cannot operate with the industry structure that currently exists in New South Wales. There are 25 distribution authorities which perform both distribution and retail supply functions. While one distributor (Sydney Electricity) accounts for 40 percent of the NSW market, the 21 rural authorities, on average, each account for around 1 per cent of the market. The small size of most of these distributors makes them commercially unviable as retail suppliers in a competitive market.It is proposed that the existing 25 distributors be merged to form a substantially smaller number of new corporations. The number of distributors must be consistent with the achievement of optimal economies of scale in both distribution and retail supply. In this regard an indication of appropriate numbers is given by the position in other States.
The available evidence on economies of scale supports a reduced number of distributors. NSW Treasury commissioned London Economics in late 1994 to report on economies of scale in the electricity generation and distribution sectors. Based on an analysis of 119 distribution utilities from the United States, United Kingdom and Australia, they concluded that the minium efficient size for distributors was between 12,000 GWh and 30,000 GWh of sales per annum, although the range for distributors displaying constant returns to scale went as low as 2000 GWh per annum. In terms of customers, the minimum efficient size was between 0.5 million and 1.25 million, although again the range for constant returns to scale distributors went as low as 94,000 customers.
The amalgamation of electricity distributors will require the establishment of head office activities by the new distribution businesses within the regions they serve. The centres which are selected as locations for the new head offices could be expected to benefit from increased employment opportunities and associated economic effects. While rationalisation of some existing head offices is to be expected, regional offices will also need to be maintained by the new, larger distributors.
2.3.3 COMMERCIAL FRAMEWORK
It is proposed that a commercial framework be established for the amalgamated distributors.Commercial Rates of Return
Current distribution sector profitability is well below commercial levels and returns earned by interstate counterparts. Low profitability has largely resulted from previous pricing decisions which, largely due to concerns over the lack of effective commercial discipline in the distribution sector, assigned industry profitability to the generation sector. This reliance on generation sector dividends exposes equity returns from the industry to the risk of wholesale price reductions anticipated in the competitive market. This is particularly so under the current regulatory framework where wholesale price reductions are required to be fully 'passed through' to retail customers, effectively capping distribution profits at current low levels.
Commercial returns on distribution network assets are required to ensure competitive neutrality with alternative sources of energy (for instance, gas) and for distributors to be able to recognise the full cost of capital. If Government owned distribution businesses are operated as efficiently as similar businesses in the private sector then they should be subject to similar returns on the equity invested. Therefore, regulated network revenue needs to be sufficient to cover the efficient costs of operation, including a commercial cost of equity.
It is proposed that network operators are regulated to earn a commercial pre-tax return on revalued assets. Regulatory pressures through network revenue capping will assist in providing incentives for network operators to minimise operating costs.
The proposed structural reforms of the distribution industry are projected to produce significant productivity savings which, when combined with anticipated reductions in wholesale prices, will facilitate both commercial returns on network assets and significant real reductions in retail prices. Average retail prices are projected to decline by 20% in real terms over the next five years, and remain extremely competitive relative to retail prices in other States.
Appropriate Asset Valuations
Asset values for NSW distributors are high in comparison to interstate distributors. In particular, the asset values of rural distributors are approximately 30% higher than their Victorian counterparts (measured on a cents per kWh basis). There are also wide variations among asset values of individual distributors, indicating inconsistent asset valuation methodologies.
As a consequence, asset write-downs of up to 30% may be required. Larger adjustments in asset valuations of rural distributors relative to metropolitan distributors may be required in order to facilitate commercial returns and reasonable pricing parity between similar rural and metropolitan customers.
Commercial Capital Structure
A commercial framework requires that all distributors have an appropriate capital structure. Current debt levels of most distributors are relatively low, with an average gearing of approximately 13%, compared to the proposed 50% to 60% gearing of Victorian distributors.
Despite low profitability, rural distributors have been able to accumulate significant cash reserves as they have little debt and are not currently required to pay tax and dividends. In the absence of a commercial cost of capital, distributors are provided with strong incentives to eliminate debt and over invest in network assets. Local Government governance structures have contributed to the development of inefficient capital structures.
In conjunction with an increase in network sector returns to commercial levels, there is also an opportunity to review debt levels in order to achieve a commercial capital structure appropriate for mature, low risk utilities. For example, financial modelling indicates that a 10% per annum regulated return on network assets will generate sufficient cashflow to support gearing levels of up to 50% for network businesses.
The return of equity to the Government resulting from capital restructuring of the network sector may be utilised in part to repay debt in the generation sector, as it prepares for competition. Any residual capital amounts transferred to the Government would be used to reduce general government sector debt, so that the net debt position of the State remained unchanged.
Financial Distributions
Currently, the generation and transmission sectors make financial distributions to Government (tax equivalents and annual dividends) representing 85% of pre-tax profit. Metropolitan distributors pay 70% of pre-tax profit while rural distributors do not pay tax and dividends to the Government.
The State and Commonwealth Governments agreed in March, 1994 that any State Trading Enterprise not subject to a State Tax Equivalent Regime by March, 1997 would be exposed to Commonwealth taxation. As a result, the State Tax Equivalent Regime will be extended to apply to rural distributors from 1 July, 1995, thereby imposing on rural distributors the same disciplines in relation to tax payments as metropolitan distributors and private sector organisations.
Distributors have the capacity to increase payout ratios in view of the proposed increase in regulated profitability and given that capital expenditure is largely funded by depreciation and capital contributions. A uniform policy across the NSW electricity industry may require an increase in financial distributions and will assist in stabilising distribution sector capital structures.
2.4 TRANSMISSION
In February, 1995 the Electricity Transmission Authority was established to carry out the high voltage transmission system coordination and system security functions. Previously, these functions had been the responsibility of Pacific Grid, a subsidiary of Pacific Power.The Authority will continue to carry out these functions in the new industry structure.
Currently, the Authority is undergoing an Efficiency Review and a Capital Structure study. Both these exercises were commenced at the time the Authority was established to provide a sound foundation for the Authority's operation and control. The Efficiency Review is evaluating the management structure and resource levels necessary for a 'best practise' transmission system operator. The Government will use the Review to establish operational and service benchmarks and develop appropriate performance agreements.
The Capital Structure Study will determine the appropriate level of gearing for the Authority. High voltage transmission is a relatively low risk, capital intensive monopoly business and will have a similar financial structure to the distribution network sector.
These processes will continue through 1995 as originally scheduled.
Until there are appropriate national arrangements in place, the ETA will be responsible for market operations and settlements. This will require the transfer of a small number of Pacific Power staff to the ETA.
2.5 SYSTEM CONTROL AND MARKET OPERATION
While a key feature of the industry structure proposed for New South Wales is a movement away from the heavily centralised forms of industry decision making and planning of the past, there are a number of important areas requiring some centralised co-ordination for reasons of efficiency, security of the electrical system and commercial neutrality.The Electricity Transmission Authority currently has responsibility for the high voltage transmission network and for the operation and security of the system - the minute by minute balancing of supply and demand, the switching of network elements and the maintenance of the physical integrity of the system. The Authority will retain these responsibilities and, in addition, will assume responsibility for the development and administration of an interim State wholesale electricity market. All activities currently undertaken by Pacific Power which are necessary for the development and operation of the interim market will be transferred to the Authority.
The interim State market will enable trade in bulk electricity to take place between NSW generators and retailers prior to the commencement of the national electricity market. Once the institutions and support systems which make up the national market are operational, the State market will cease and trade will occur under the national arrangements. The State market will serve principally as a bridge between the restructuring of the industry in New South Wales and the commencement of the national market.
The Electricity Transmission Authority will develop and administer the market trading and settlement systems. Given that these will be interim arrangements leading into the national market, the primary design criteria will be simplicity, ease of operation and, as far as possible, conformity with national market design principles in all major respects. As a result, it is envisaged that participation in the interim wholesale market will be limited to existing generators of more than 30 MW in size and the new distribution/retail entities to be formed out of the existing electricity distributors. Participation by new entrants and end users (consumers) will be deferred until the national market is operational.
With the exception of large users that currently take their supply under contract direct from Pacific Power, during the interim market all end users will continue to take supply from the new distributor/retailers.
Generation units in the interim market will bid their plant into an electricity pool, which will also function as a spot market. Dispatch will then be determined by the market operator (in this case the Electricity Transmission Authority market operations group) according to the nature of the bids received. The bid of the last plant to be dispatched will set the market price for that period of time. The dispatch order is passed on to the system operator who will use this schedule throughout the day to balance supply and demand and direct the generators to load their units accordingly. In conformity with national market proposals, it is envisaged that generators will decide for themselves when they will "commit" their units and make them available for dispatch.
| POOL PRICE | TIME | TOTAL DEMAND | SCENARIO | GRAPH POINT |
|---|---|---|---|---|
| $35 / MW per hour | 1.30pm | 470 MW | Generators 1, 2, 3 and 4 are fully utilised. Generator 5 is partially used. | Point D |
| $30 / MW per hour | 1.00 pm | 400 MW | Generators 1, 2, 3 and 4 are fully utilised No other generators used. | Point C |
| $12 / MW per hour | 12.30 pm | 200 MW | Generators 1 and 2 are fully utilised No other generators used. | Point B |
| $8 / MW per hour | 12 noon | 100 MW | Generator 1 is fully utilised. No other generators used. | Point A |
The demand by all buyers at 1 pm is 400 MW and the highest priced generator is Generator 4. The pool price is set to Generator 4 price viz. $30/MWh. It is known as the Marginal Generator as any changes in overall generation requirement will incur on it.
All generators being used are paid the pool price for the electricity they produce: at 1 pm generators 1, 2, 3 and 4 are paid $30/MW per hour.
Note that Generator 6 at $40/MW supplies no electricity and receives no pool income for production at this time.
The examples are simplified versions of the price determination process. The final price will include any costs associated with running a generator out of bid order for system security.
Source: National Grid Management Council
All wholesale trade will take place through the pool. However, both retailers and generators will be able to reduce their exposure to pool prices, which may be quite volatile at times, by entering into contracts. These contracts would normally cover fixed amounts of energy over specified time periods and under agreed prices.
In the interim market a high proportion of wholesale trades may be covered by vesting contracts, which fix the prices and quantities of trades for buyers and sellers prior to the commencement of the market. Once the national market commences the level of vesting contract cover will be progressively reduced.
Special arrangements will be required to manage supply which is sourced from the Snowy Scheme and from interstate under the Interconnection Operating Agreement. Currently, New South Wales has access to 58% of the output from the Snowy Scheme. This is managed by Pacific Power and is fed into the State grid. Under proposals currently before the Commonwealth, Victorian and NSW Governments, the Snowy Scheme will be corporatised as a joint venture of the three Governments and the output independently bid into the national market by the new corporation. Until this occurs it is envisaged that the NSW share will be managed by a separate Snowy trader established within the Electricity Transmission Authority.
Similar arrangements will be introduced to manage the purchase and sale of electricity between New South Wales, Victoria and South Australia under the Interconnection Operating Agreement.
2.6 REGULATION
A revised regulatory framework will be required to support the new industry arrangements. While many of the regulatory changes which will be required in New South Wales have already been foreshadowed by the move to a national market and are currently being designed into the national market arrangements by the NGMC, some regulatory functions will remain a State responsibility. For others, a transitional period will be required as controls at the State level are progressively transferred to national institutions.In a competitive electricity market, the economic regulation of generation and retail supply, as competitive activities, will be limited to the normal form of conduct regulation applied through the Trade Practices Commission to all commercial activities. Specific regulation of the distribution and transmission sectors will be required, however, due to their natural monopoly characteristics.
Regulation of these sectors will at least initially be a State responsibility and will cover both access conditions and usage charges. The regulatory framework applied will be transparent, economically sound and fair to all parties. This will require the determination of appropriate asset values, rates of return and cost allocation methodologies as integral components of the regulatory framework.
In the initial period of the market's operation, continued formal oversight of retail prices which are currently subject to cross subsidy will be required. In addition, it will be desirable for all retail prices to be subject to careful monitoring until such time as the market is shown to be operating effectively.
The Government Pricing Tribunal will continue to carry responsibility for economic regulation of the electricity industry. Amendments to the Tribunal's legislation will be introduced to reflect the changed requirements of the regulatory framework.
Wherever possible the application of technical and economic regulation will be consistent with the Code of Conduct currently being developed by the NGMC for the national electricity market. The NGMC intends that the code will be authorised by a national regulator (the Trade Practices Commission or its successor) and will cover the following areas:
- market rules - specifying the mechanisms for the spot market, the short term forward market and settlements, and;
- network pricing - specifying the obligations on network owners with respect to the pricing of their services and the publishing and billing of charges.
- grid connection, access and metering - specifying the technical arrangements by which customers, generators and retailers can gain access to the high voltage network. Metering standards will also be specified to ensure that the amounts of electricity being traded are accurately measured.
- regulations - specifying the obligations of participants, dispute resolution processes and mechanisms for making changes to the rules; and
- system security - specifying the arrangements that ensure the security of the system is maintained.
2.7 RELATIONSHIP TO NATIONAL REFORM
It is a basic premise of these reforms that the greatest benefits to consumers and the environment will come from the introduction of a national electricity market. The changes to be introduced in New South Wales are designed to both prepare the industry for the commencement of the national market and, through structural reform, improve the effectiveness with which the national market operates.An implementation schedule will be developed which integrates the reform program in New South Wales with the tasks which remain to be completed to allow the national market to begin. The NGMC has proposed that two institutions, the National Electricity Market Management Company (NEMMCO) and National Electricity Code Administration Company (NECA), are established with primary responsibility for the implementation and administration of the national market. New South Wales is proposing to work with the NGMC on the establishment of these bodies as a matter of priority.
2.8 IMPROVED ENVIRONMENTAL OUTCOMES
Reform of the NSW electricity industry will produce significant improvements in environmental quality. Investment in renewable generating technologies will be positively encouraged both through market incentives and direct Government support.Government policy will also ensure that environmental benefits from the demand side are realised. The market will provide strong incentives for retail suppliers to broaden their focus to the whole energy services market. A major policy initiative will be the establishment of a Sustainable Energy Fund, which will be used to support a wide range of activities from information provision to direct funding of demand side processes. The Government will also be refining its policies towards renewable generating technologies, cogeneration projects, landfill and coal-bed methane generation projects, and greenhouse co-operative agreements with NSW industry with a view to optimising environmental outcomes.
2.8.1 ENVIRONMENTAL IMPACTS OF THE ELECTRICITY INDUSTRY
The electricity industry has major impacts on the environment, both in the fuel production and generation processes, and in electricity transmission and distribution.The process of generating and supplying electricity requires a large-scale manufacturing process. The main fuel consumed in the generation of electricity in New South Wales is black coal, and the mining of this coal also has a significant impact on the environment. By-products from mining and electricity generation include:
- greenhouse gases such as carbon dioxide and methane;
- particulate and gaseous pollution, including sulphur dioxide and nitrous oxide emissions produced by the burning of coal;
- liquid pollution including the salination of water systems;
- thermal pollution from power station cooling water;
- fly-ash and other waste solids; and
- visual pollution associated with the impact power stations and mining operations have on the landscape.
Electricity transmission and distribution also have significant impacts on the environment. Both transmission and distribution lines have major aesthetic impacts, especially where they pass through areas of natural beauty.
One of the goals of reform of the electricity industry must be to improve environmental outcomes. It is important that electricity reform will lead to efficiencies, both in the production, and consumption of electricity. As well as maintaining the existing high standards of environmental protection in New South Wales, the industry reforms will lead to:
- lower levels of greenhouse gas emissions, consistent with the National Greenhouse Response Strategy endorsed by the Council of Australian Governments in 1992; and
- appropriate utilisation of environmentally superior generating technologies and energy efficiency in consumption, both necessary components of the National Strategy for Ecologically Sustainable Development.
2.8.2 ELECTRICITY AND ENERGY SERVICES
The demand for electricity is a derived demand. In general, electricity users do not desire electricity for its own sake, but require it as an input in the production of an energy service such as space heating, cooking, lighting, or in a manufacturing process. This important observation implies that when assessing the environmental impact of the electricity industry, consideration needs to extend well beyond the generation and transmission process, to the uses to which electricity is put.A useful way to approach the environmental impact issue is to make a distinction between the supply of electricity and the demand for it. The supply side relates to those factors that affect the production of electricity, and the demand side relates to those factors which affect the use to which electricity is put.
In general, energy services can be delivered either through supply side responses or demand side responses. For example, a quantity of light can be provided by a given quantity of electricity powering an incandescent light bulb. Alternatively, the same quantity of light can be delivered by a lower quantity of electricity powering a high efficiency compact fluorescent light bulb. The environmental impacts of delivering an energy service are influenced by the type of appliance used to deliver that service (demand side), as well as the process used for producing and delivering electricity (supply side). There is considerable scope for substitution between electricity consumption and energy conservation measures.
The reforms will lead to reduced greenhouse gas emissions such as carbon dioxide and methane. This will occur through a number of processes:
- operational efficiencies - competition will lead to a higher level of operational efficiency in the production of electricity. Consequently, there will be a lower rate of greenhouse gas emissions for a given level of electricity demand.
- greenhouse friendly generating technologies - these will be supported and encouraged, via:
- effective price signals - niche marketing opportunities will be created, with cross-subsidies disappearing and prices becoming cost reflective;
- the removal of institutional barriers to renewables;
- the removal of the cultural bias towards large coal-based generating technologies;
- the creation of incentives for small-scale supply side investments, utilising technologies such as cogeneration, solar power, wind power, and landfill and coal-bed methane - in particular retail suppliers will be looking to match small demand changes to supply capacity;
- encouragement of Remote Area Power Supplies based on renewables, reducing costly transmission losses and grid investments; and
- the promotion of and support to greenhouse friendly generating technologies through the Sustainable Energy Fund.
- energy efficiency - incentives will be provided for the more efficient use of energy via:
- effective price signals will create incentives for consumers to utilise electricity efficiently;
- retail suppliers will focus on the provision of a range of energy services, and not just electricity supply - a key part of this will be the provision of assistance to customers to use energy efficiently; and
- the Sustainable Energy Fund will be used to facilitate increased energy efficiency, both through the provision of information, and through direct financial support.
- industry co-operative greenhouse agreements - creating win-win outcomes through co-operation rather than costly regulation:
- this will be consistent with the no-regrets approach to greenhouse gas reduction, ensuring both the environment and the economy benefit.
- improved competitiveness of the State and Australian economies - which will encourage development to take place locally, rather than in much less greenhouse efficient countries, leading to global reductions in greenhouse gas emissions.
- greenhouse friendly research and development - the Government will support greenhouse related R&D, through the Sustainable Energy Fund, and other policy initiatives.
2.8.3 SUPPLY SIDE REFORM
The most prominent aspect of reform of the NSW electricity industry relates to the supply side. Transmission has been separated from generation. Competition will be introduced into the generation sector. There will be a separation of distribution activities from retail supply, and there will be extensive restructuring of the NSW distribution authorities.All supply side participants that are operating within New South Wales will require a license to operate, and the licenses will specify stringent environmental conditions that the holder is required to meet. The NSW Environmental Protection Authority (EPA) will have an important role in ensuring that license conditions are met and adhere to existing environmental.
The supply side reforms promote increases in the efficiency with which electricity is produced and delivered to users. For a given level of demand, this will lead to a reduction in the output of greenhouse gas emissions and other forms of pollution.
In the shorter term, the level of competition in the market will be critical in ensuring that nationally, generators maximise the efficiency with which they generate energy from the existing capital stock.
Effective competition in New South Wales will also create the conditions which are necessary for achieving optimal environmental outcomes. The history of generation monopolies such as Pacific Power is that of large engineering dominated entities, with a strong supply side focus, and a centralised approach to decision making which had a definite bias towards big engineering based "solutions". Excessive levels of reliability were built into the system, with the environmental costs that inevitably follow. While there has already been a significant change in culture within the NSW electricity industry which now has a much stronger commercial focus, the supply side bias still exists. Indeed, in the last couple of years Pacific Power has dedicated very few resources towards demand management compared with the situation of a few years ago.
In the longer term, as new investment in the industry takes place, the competitive market will provide powerful incentives to investors to build plant that utilises environmentally friendly technologies, such as combined cycle gas turbines. Generators will have the incentive to innovate in order to gain a competitive advantage.
The competitive market will provide incentives for retail suppliers to diversify their sources of electricity, and develop a much broader focus on the delivery of value-added energy services, not just electricity supply. Retail suppliers will be faced with meeting small increments in demand compared with those faced by the dominant generating entities of the past. Because retail suppliers have a good knowledge of their customer's demand profiles, they will be able to effectively match supply to those demand patterns through small capacity increments. It follows that the market will create the conditions for investment in small scale environmentally friendly generation projects such as cogeneration plant, mini hydro schemes, and other renewables based technologies.
These types of environmentally friendly investments have not been undertaken in the past by Pacific Power, who as the dominant generator found it easier to manage large discrete increments to capacity rather than a lot of small ones. There would be a lack of such environmentally superior investments in any future market which continued to be dominated by a single generator. Such a generator would inevitably maintain a tendency towards adding large increments with the risk of this leading to excess generating capacity, as has been the case with Pacific Power in the past.
Furthermore, with a greater level of competition in the market, plant with lower sunk costs will be more attractive to all potential investors than has previously been the case. Again, this will create a bias towards environmentally friendly technologies compared with large black coal-fired generation.
In the longer term, the market arrangements will produce new investment that will ensure that security of supply is maintained at a lower cost both to the economy and the environment.
While the major impact of competition in the wholesale market will be on prices, given the high level of community concern regarding environmental outcomes, competitors will also wish to demonstrate their environmental credentials. Competition is likely to make environmental performance more transparent, in part because it will be possible to make comparisons between generating entities and hence punish poor performers.
The emissions of carbon dioxide and other greenhouse gases produced by coal-fired electricity generation are associated with global warming. This is an unusual environmental issue because it has potential impacts that are very widespread. This means that there is scope for actions in one country to have impacts on other countries. Any reductions in greenhouse gas emissions within Australia will therefore have widespread flow-on benefits. Furthermore, if electricity can be produced within Australia more efficiently and with a lower greenhouse gas intensity than overseas, it may be beneficial globally for manufacturing to take place here rather than overseas. Increases in the efficiency of electricity production in New South Wales and Australia will contribute to the competitiveness of the economy, and hence to a global shift to lower greenhouse gas intensity in manufacturing.
On the transmission and distribution side, the NSW Government will support the design of a regulatory regime for the national electricity market that provides incentives for the transmission and distribution authorities to reduce line losses, given generation and supply patterns. The NSW Government will also support the development of renewables-based remote area power supplies (RAPS) where this is a better alternative to grid connections.
2.8.4 PROMOTING EFFICIENCIES ON THE DEMAND SIDE
The most obvious source of efficiency on the demand side will come about as a consequence of the price signals that the competitive national electricity market will provide. In the past, regulated electricity tariffs in New South Wales have contained significant cross-subsidies, which have hidden the true cost of electricity production. In fact in the domestic market, consumers have been faced with "declining block tariffs" which if anything inappropriately give incentives to wastefully increase rather than reduce electricity consumption.Where consumers see high electricity prices when the cost of production is high, this creates the appropriate incentive for them to seek out means of electricity conservation. Furthermore, the capital in the electricity industry is likely to be used more efficiently when there are appropriate price signals, which in the longer term will lower resource costs and lower the associated environmental costs.
More visible price signals will also facilitate the utilisation and development of technologies to meet particular market niches. Figure 2.7 gives an indication of how wholesale spot electricity prices would be expected to vary, compared with the current bulk supply tariff. It is expected that prices will vary in a similar pattern to demand variations. By way of example, the more extreme peak time prices will create further opportunities for small-scale environmentally sensitive generation technologies. Technologies such as cogeneration, solar photovoltaics, solar thermal, wind energy, and hybrid systems will be able to compete by supplying to a niche part of the market at times when prices are favourable and there are peak load requirements.
The unwinding of cross subsidies, along with increases in economic efficiency, will lead to a reduction in electricity prices for consumers, some more than others. Indeed, this will be one of the major benefits of industry reform. This has the potential to lead to an increase in the demand for electricity, with an increase in environmental costs. In spite of this, it does not follow that electricity prices in New South Wales should be kept high in order to minimise environmental impacts. Raising electricity prices will not necessarily optimise environmental outcomes because of other distorting influences that pervade the economy. Furthermore, because the environment is not the only consideration for pricing policy, there may be better approaches to optimising environmental outcomes than through lifting prices.
A regime of tradeable emission permits will provide a very flexible market based instrument that can be used to meet a desired level of emissions. The EPA has been conducting some trials with the use of tradeable permits to control salinity levels in the Hunter Valley. The NSW Government will be monitoring the outcomes of these trials. Nevertheless, in regard to greenhouse gas emissions, in the absence of multi-lateral agreements on the use of tradeable permits, the Government supports the use of co-operative agreements with industry as providing currently the best process for reducing greenhouse gas emissions without damaging the competitiveness of the state economy.
The other major areas of environmental benefits on the demand side will occur as a consequence of the separation of the retail supply activity from distribution. This will help to encourage retail suppliers to broaden their focus beyond the supply of electricity. Retail suppliers will become involved in supplying a whole range of energy services across the demand side.
In addition to the incentives that the market will provide directly, for the reasons outlined in the following section, the Government believes that there remains a compelling case for the Government to play an active role in the promotion of energy conservation.
2.8.5 SOURCES OF MARKET FAILURE
The failure of electricity prices to reflect the full social costs of electricity production is one potential source of market failure. In the absence of some form of Government intervention, the level of pollution associated with electricity production could be excessive, depending on other market failures affecting electricity, substitutes for electricity and complements to electricity.More generally, it is widely accepted that there is considerable scope in Australia to increase the efficiency with which electricity is consumed with only minor additional cost. Specifically, consumers could "purchase" many of the energy services they desire at a lower cost than they currently face, with the saving in electricity consumption more than offsetting increased costs in energy efficient technologies. There are obvious benefits for the environment in such outcomes.
It is an interesting and important question as to why these opportunities are being foregone. The existence of these foregone opportunities provides prima facie evidence of the existence of market failures. Furthermore, it creates the potential for demand management. Demand management, as the term suggests, implies some pro-active process of influencing demand, rather than simply leaving it to the market.
There are a number of possible barriers to the introduction of energy efficiency and renewable energy. The most notable are:
- access to capital;
- the payback gap (or difference in discount rates between utility supply side investment and the consumer's demand side investment);
- the low priority of energy expenditure;
- split incentives (eg landlord/tenant situation);
- a lack of information for consumers including the costs and benefits of energy efficiency; and
- environmental costs (externalities) not included in prices.
- the over capacity situation in New South Wales;
- price regulation, such as low off-peak electricity tariffs, which discourages renewables;
- options for renewables are not often as cost effective as conventional generating technologies, except in niche applications.
One source of market failure is lack of information. If consumers are not fully informed about the costs and benefits of using particular demand side technologies, and if the cost of gathering that information is significant, then opportunities to reduce purchase costs will be foregone. Because electricity is used in association with an appliance which is usually durable, the lifetime cost of the flow of energy related services that are demanded may be difficult to determine. Furthermore, because no two appliances are identical, the flow of services may not be identical. And, because electricity bills are not itemised, the real cost of operating the appliance may not be clear.
Therefore, there are good reasons for thinking that lack of information is one source of market failure. Uncertainty about future technological developments and energy costs add to these problems. The NSW Government can provide a useful role in facilitating the flow of information, and overcoming the lack of technical competence most consumers would have to undertake the necessary comparison of alternatives. Private sector consumer organisations in co-operation with government can also make very useful contributions in these regards.
A second reason why apparently low cost energy efficiency options have not been taken up by consumers is a consequence of an apparent imbalance in the capacity of large suppliers and small consumers to access capital. Many consumers find it difficult to meet the relatively large up-front costs of investing in energy efficient appliances, such as solar water heater systems. Consumers require short pay-back periods on such investments. On the other hand, generators have been able to raise capital at a reasonably low cost and have provided very lengthy pay-back periods for their supply side investments. The NSW Government will consider the merits of providing assistance to consumers to get access to capital, and the possibility of directly providing grants.
A third reason for the low uptake of energy efficiency is sometimes labelled the "landlord/tenant" problem. Consumption of a lot of energy services is by tenants in buildings that they do not own. Increased energy efficiency will often require investments in permanent infrastructure that is connected to the building. While such investments may get capitalised into the value of the building, the return accrues to the landlord rather than the tenant. Therefore the incentive for the tenant to make the investment is reduced, and the increase in the value of the building may not be sufficient to compensate the landlord who does not receive the gains from lower energy costs. Again, there is a possible role for Government in relieving this problem.
A fourth explanation relates to the imbalance in the market power between the supply and demand sides of the electricity market. Historically, there has been an imbalance in the capacity of providers of energy efficiency services on the one hand, and energy suppliers on the other hand to reach consumers. Electricity retailers in New South Wales have had a powerful marketing advantage because they already have contact with energy service consumers. For example, promotional material has often been included with customer bills each quarter. As long as the modus operandi of electricity retailers has been limited to selling electricity, suppliers of energy efficiency services have been at a disadvantage. This raises the issue as to the incentives that industry participants face, which is addressed below. In some respects, this explanation is one aspect of the information problem. However, this particular problem is already diminishing as competition increases across the market, with many retailers already focusing more on value added services that include assisting consumers to use electricity more efficiently.
There are also low uptake explanations that relate to Government policies that may have biased outcomes away from energy efficient outcomes. For example, many appliances are subject to sales tax which increases their cost to the consumer, reducing the relative attractiveness of energy efficiency. Unfortunately, as sales tax is levied by the Commonwealth, there is little that the New South Wales Government can do about this directly.
Price regulation of electricity producers can also create inappropriate incentives on the supply side. For example, where the regulator sets price caps, the supplier can increase their profit either by reducing costs or increasing sales. On the other hand, if the regulator caps revenues, the supplier has a lesser incentive to increase sales. The NSW Government Pricing Tribunal (GPT), which is independent of the Government, has recognised this issue. The revised rate of return based regulatory framework that the GPT will be utilising will enable the incentive issue to be appropriately addressed.
2.8.6 SUMMARY OF ENVIRONMENTAL INITIATIVES
The NSW Government's electricity reform strategy reflects its strong commitment to the development of an effective national market. The planned reform of the structure of the electricity industry will retain any economies of scale, and in itself will not prejudice the industry's existing level of environmental performance. In fact, the increased level of competition will provide the right incentives for industry participants to improve their environmental performance, both operationally and with respect to future investment decisions.The Government will ensure that the regulations that industry participants face are carefully designed to help promote appropriate environmental outcome, without at the same time imposing an inappropriate level of compliance costs on the industry. Industry participants will face stringent license conditions that dictate the requirement for world's best practice environmental outcomes. The EPA will be provided with the necessary resources to police outcomes, though it is not expected that the EPA will face a greater burden than has so far been the case.
Government policy will need to be refined with a view to ensuring that there is an appropriate supply and demand side balance in the industry. Specific policies will be developed with respect to renewables, cogeneration, landfill gas, and industry co-operative agreements. As identified above, the Government will need to be involved in the provision of technical information related to energy efficiency technologies. It may also be appropriate for funding to be made available in the form of grants to assist in the meeting of capital costs associated with efficient consumption. One means of delivering these outcomes will be through the establishment of the Sustainable Energy Fund.
The Sustainable Energy Fund
The NSW Government will establish a Sustainable Energy Fund (SEF) to provide the resources to address specific market features. The SEF will be used inter alia for the support and promotion of energy efficiency programs, and to further the development of renewable energy technologies. The environmental benefits from the use of the fund will extend well beyond the global warming issue.
The establishment of the SEF will be an important complement to the broader electricity industry reforms. The creation of the competitive electricity market will provide much greater opportunities for the commercial implementation of environmentally favourable supply and demand side options. However, in addition to these reforms the Government recognises that there will be a continuing need to ensure that energy efficiency programs and newly developing alternative technologies are adequately funded, in order to facilitate their development and delivery.
The SEF will be used to help create robust markets for green energy by supporting the cost effective, efficient and environmentally sound production and use of electricity. As further progress is made towards reforming energy markets, the use of the SEF may be extended to the promotion of the efficient use of other fuels including gas.
Activities supported by the SEF are likely to include:
- provision of funding for energy efficient technologies;
- information campaigns to enhance the community's awareness of the environmental and economic benefits of energy conservation and renewable energy sources;
- provision of information on energy efficient technologies;
- monitoring of expenditure by industry on energy efficiency and conservation;
- promotion of energy efficiency in industry, for example through energy audits;
- development of a better understanding of end-use demands;
- exploring the possibility of using tradeable quotas to promote alternative generating technologies;
- promotion of best practice, for example through energy efficiency benchmarking, support of research and development into technologies and demand management; and
- development of demonstration programs, such as a Renewable Energy Incentive Scheme.
The Government will establish an expert SEF Working Group, to develop priorities and guidelines for the SEF. The Working Group will need to identify the process for managing the fund, establish the appropriate level of funding, clarify the objectives for the fund, identify priority areas for action, and develop guidelines for project funding selection criteria. It is expected that the SEF Working Group will report back to the government within three months.
Renewables Policy
The Government will develop a clear policy towards renewable generating technologies, which will be complementary to the use of the Sustainable Energy Fund. One of the objectives of the policy will be to ensure that any institutional barriers to the utilisation of renewable energy have been removed. Several of these barriers were identified in a report prepared by G Wilkenfeld and Associates Pty Ltd for the Department of Energy and the Government Pricing Tribunal in 1994, titled "Renewable Energy Resources in Electricity Supply and Use in NSW", which assessed the impact of price regulation and the institutional structure of the energy market on the utilisation of renewable energy.
The Renewables Policy will also address the site requirements for many renewable energy forms. Consideration will be given to the possibility of having specific targets for renewables capacity. The extent of and means by which the Government will play a facilitation role will be determined, including investigating the merits of a Renewable Energy Incentive Scheme. The appropriate level of contribution of the government towards research, development, and demonstration projects will be determined.
Cogeneration Policy
The Government will clarify its policy towards the promotion and development of cogeneration projects. Cogeneration is the production of both electrical (or mechanical) energy and thermal energy from the same primary energy source. A report prepared for the Department of Energy in 1992 by Energetics Pty Ltd estimated that there was potential for an additional 200 MW of gas-fired cogeneration which would lead to significant environmental benefits.
The Department of Energy is currently sponsoring a gas-fired Cogeneration Demonstration Program. Eight projects totalling 5 MW have been selected for funding, varying in size from 0.2 to 2 MW and cover a variety of applications from abattoirs, to hotels and hospitals. Potential savings in greenhouse terms are of the order of 35% fewer tonnes of carbon dioxide when compared to conventional coal-fired power stations using gas-fired boilers. The Cogeneration Demonstration Program will be very helpful in furthering the Government 's policy towards this particular supply side approach.
Harnessing the sun's energy is currently being developed using two types of technologies: solar thermal and photovoltaics. Australia leads the world in the development of these technologies, especially in the area of solar photovoltaics where Professor Martin Green and his team at the University of New South Wales hold the world record for efficiency of silicon solar cells.
Photovoltaics uses thin sheets of semiconductive material to directly transform sunlight into electricity when illuminated. Current applications include remote telecommunication stations and Remote Area Power Systems. The Government will ensure that current programs continue, in particular the research at the University of New South Wales to advance the development of thin film solar technology which may potentially bring the cost of photovoltaic electricity down to levels competitive with fossil fuels.
Solar thermal does not create electricity as directly as photovoltaics, but rather uses solar collectors to heat a fluid, usually water. The resulting heat can then be used either directly (eg solar water heaters) or may supply steam for turning a heat engine.
There are two solar thermal electricity generation technologies currently under development in Australia - the parabolic dish technology being developed at the Australian National University and the parabolic trough technology being developed at the University of Sydney.
Solar thermal trough technology is probably the nearest solar technology to commercial-scale development for cost-effective electricity generation. Nine power plants with a total capacity of 354 MW (including two 80 MW units) are operating in California. The technology is viable, but economics need to be assessed for each application. This technology would clearly be targeted for support by the Sustainable Energy Fund.
In Australia it is estimated that solar thermal electricity would presently cost 15-20 c/kWh depending on different specific parameters related to power stations, sites and technology. Costs of plants will fall with technical developments, economies of scale of production and mass production. It has been estimated that solar thermal technologies could be capable of generating utility-scale electricity by the year 2000 for prices in the range 8-10c/kWh. While clearly not competitive with large base-load coal-fired plant, at such prices solar thermal electricity would approach commercial viability for some sites.
Landfill and Coal-bed Methane
Support will be given to landfill and coal-bed methane drainage generation projects. The use of methane as a fuel for power generation is being undertaken, both in large-scale applications where waste gases from coal mining operations are combusted, to small-scale stations using methane drained from landfill operations. Methane is a more damaging greenhouse gas than carbon dioxide because it is approximately 24 times more powerful in absorbing infrared radiation using a 100-year time horizon (Intergovernmental Panel on Climate Change, 1994).
There is considerable private sector interest in developing landfill sites and the NSW Waste Service estimates an additional 50 MW is commercially viable. Government policy will be aimed at facilitating such developments.
Industry Greenhouse Co-operative Agreements
The Electricity Supply Association of Australia (ESAA) has been actively progressing the implementation of voluntary or "co-operative" agreements between Government and industry. Co-operative agreements are based on a comprehensive approach and can be designed to address a range of greenhouse gases, sources, sinks and processes as well as products. The ESAA recognises that industry will provide the technical solutions with which the community can address emissions abatement. A key element involves the degree of cooperation that can be established between government and industry.
The NSW Government supports the notion of co-operative agreements. This approach to controlling greenhouse gas emissions is consistent with a competitive electricity market structure and still permits Government to set goals for reducing greenhouse gases. Co-operative agreements have the advantage of involving industry in the political process, increasing industries' motivation and responsibility to achieve environmental objectives. They also permit a better definition of instruments to be adapted in the economic and competitive context. If the State's overall emissions do not measurably fall, then other measures can be introduced.
Both the Department of Energy and the EPA will have a role in developing co-operative agreements with industry, in association with the ESAA and other industry bodies, and initiatives being undertaken at a national level.
Demand Management
Current estimates indicate that between 5-10% in energy efficiency savings can be achieved through the use of demand management. Typical programs include lighting efficiency improvements (both residential and commercial sectors), promotion of high efficiency appliances, and promotion of substitute technologies or fuels, for example microwave cooking or use of gas for cooking. These programs can achieve significant demand reductions to alleviate system constraints during peak load periods.
The Government will be ensuring that the demand management currently being implemented in the Northern Rivers region in order to defer the need to augment the capacity of the grid, is used as a model for other similar situations. These projects are load growth dependent and benefit from demand management in that savings are achieved in fuel and associated generation costs. The SEF may be drawn upon to support the future implementation of such demand management projects.
Research and Development
The Government will undertake a review of the research and development activities both supported by and undertaken within the electricity industry. It is important that the industry continues to undertake a pro-active role in support of the environment. This should extend to demand side related activities, environmental monitoring and control on the supply side, and the continuing development of renewable technologies. The Sustainable Energy Fund Working Group will address the issue of the means by which support will be provided for such research.
3. IMPLEMENTATION PROGRAM
3.1 OVERVIEW
The electricity reform strategy of the NSW Government envisages that the industry itself, through the Boards of the various industry bodies, will play a key role in the detailed development and implementation of the reforms. The successful implementation of the reform program depends critically on the managers and employees within the industry accepting the challenges and opportunities which the reforms present.Accordingly, the Government is not proposing to run a heavy handed implementation process, but will limit its direct involvement to the determination and clarification of policy and the overall coordination of reform. Within the policy framework set by the Government, responsibility for detailed implementation will rest with the acknowledged experts in the industry, the industry managers.
A vital requirement for successful implementation will be effective performance based contracts with industry management so as to ensure the reforms have industry support.
The industry will be expected, within the broad framework for structural reform set by the Government, to develop proposals on the detail of the reforms and how they can best be implemented within the timeframes established.
Once an implementation program has been agreed with Government, the management of that program will become the responsibility of the Directors of the relevant industry body.
As set out in the Government's Monitoring Policy for Government Trading Enterprises (GTEs), the role of Directors is one of representing the interests of the shareholder (ie Government) to the management, rather than representing the interests of the GTE management to the Government.
Given the size and economic significance of the industry and the complexity of the strategic issues involved, participation in the reform process will represent a significant challenge to Directors and executive management. A clear commitment to the Government's key structural reforms and its expectations of implementation within a short time horizon is required, in order to deliver the benefits of higher productivity and competitive prices. Boards, and in particular their Chairpersons, will need to be closely involved in the reform process if they are to carry out their roles as effective agents for change.
3.2 COORDINATION AND POLICY DEVELOPMENT
Management of the process of reform will take place across three overlapping levels of control. These correspond to the determination of the broad reform framework and industry structure decisions, the development and selection of implementation options and the implementation process itself.Once the primary policy decisions have been taken by Government, the major part of the development of implementation options and the management of the implementation process itself will be undertaken by the industry executive managers. This will place further demands on Government to respond to implementation proposals and to provide overall coordination of the reforms, particularly in areas where a uniform approach is required for consistency or effectiveness.
To provide support to Government, an Electricity Reform Task Force will be established, reporting to the Treasurer and Minister for Energy. The Task Force will be strictly limited in size and will advise the Government on policy matters and the selection of implementation options, as well as providing an overall coordinating role in the implementation of the reforms.
The Task Force will also play a key role in coordinating input from New South Wales into the NGMC national market processes and in discussions with Victoria and South Australia concerning the Interconnection Operating Agreement.
3.3 GENERATION
The Government is committed to structural reform of the generating sector. The shape of that structural reform will be determined by the Government on the advice of a Working Group chaired by Professor Hilmer, the Chairman of Pacific Power. The Working Group will have representatives from the Central Agencies and the Board of Pacific Power and will report to the Premier in his role as Chairman of the Cabinet Standing Committee of Policies and PrioritiesThe Working Group will report by mid August on the question as to whether and how Pacific Power might be disaggregated. This will enable corporatisation legislation to be prepared for introduction during the Budget session of Parliament. The Working Party will finalise its report on generation issues by no later than December, 1995.
Interconnection with Queensland will make an important contribution to the development of a competitive national electricity market. Construction of Eastlink will bring particular economic benefits to the State by opening a new market to NSW generators. This will enable better utilisation of the State's existing generation capacity and higher economic returns from those assets. From a national perspective, it will postpone the necessity for investment in additional generating capacity in Queensland by utilising resources in other States already capable of meeting the growth in demand.
Eastlink has a high priority for the Government. Therefore, as part of the reform package, the Government will establish an industry committee to coordinate the State's position on Eastlink and to maintain the momentum which has been established. The Electricity Transmission Authority and Pacific Power will jointly negotiate with the Queensland Transmission and Supply Corporation on terms and conditions to ensure the commercial viability of Eastlink. The Electricity Transmission Authority will be responsible for planning, design and construction and the generation corporation(s) will be responsible for the availability of energy supplies.
3.4 DISTRIBUTION
The Government has indicated its decision to implement a restructuring of the distribution and retail sector. From the current level of 25 distributors a substantially smaller number of corporatised entities will be created, operating in a fully commercial environment.The Government requires advice on the number and boundaries of the new entities. To provide this advice a panel of experts will be appointed by Government, to be known as the Distribution Review Group. The panel will be supported by the Electricity Reform Task Force, and will be asked to prepare recommendations on distributor boundaries in time to allow for necessary corporatisation legislation by late August, 1995.
3.5 ENVIRONMENTAL ISSUES
Environmental issues in the electricity industry need to addressed by Government as part of an integrated policy response.The NSW Government will set specific energy efficiency related greenhouse gas reduction targets and will establish a Sustainable Energy Fund (SEF) to provide the required resources to meet those targets. The SEF will be able to address the appropriate responses to environmental issues. These responses will most likely be a combination of policy and programs aimed at measurably reducing greenhouse gas emissions in New South Wales.
The Government will establish an expert SEF Working Group to develop priorities and guidelines for the SEF. The Working Group will report back to Government within three months, identifying the process for managing the fund, establishing the appropriate level of funding, clarifying the objectives of the fund, and developing project funding selection criteria.
The SEF Working Group will consider the mechanisms for determining the merits of environmental programs in the context of both trade within New South Wales and the competitive electricity market so as not to put the State at a disadvantage.
By accepting that barriers exist to the uptake of energy efficiency as well as to the commercialisation of some alternative fuel technologies, the Sustainable Energy Fund will assist in helping these and other measures to be adopted.
3.6 LEGISLATIVE PROGRAM
A legislative program is required to give effect to the reforms. This will have three main parts:
- enabling legislation introduced into the current sitting of Parliament, which prepares the existing industry bodies for reform and provides the Minister for Energy with the requisite powers to implement reform;
- generic industry legislation, to be introduced into the Budget session of Parliament, which will establish a coherent legislative framework for the electricity supply industry and its constituent parts; and
- corporatisation legislation, also to be introduced into the Budget session of Parliament, which will establish the new corporatised generation and distribution bodies for operation in the interim State market and national electricity market.
The first round of legislative amendments establish the preconditions which will enable the Government to implement its plans for reforming the electricity supply industry. The most significant provisions in the legislation are:
- the Electricity Commissioners of Pacific Power will be replaced by an interim Board of 4 to 7 Directors, including an employee representative, and a newly created position of Chief Executive will be established. All Board appointments will be for a transitional period, and will be limited to a maximum of 12 months. A key responsibility of the transitional Board will be to prepare Pacific Power for the structural reform of the electricity industry in New South Wales. The direction of such reform will require the preparation of Pacific Power for corporatisation, in the form to be determined by Cabinet, prior to the commencement of the interim State market in the first quarter of 1996. The corporatisation legislation will be introduced during the Budget session of Parliament;
- electricity distributor Boards will be reduced in size and will be restructured to prepare them for the demands of implementing the reform of the distribution sector. The legislation provides for the appointment of new Boards or an interim Administrator. Boards or Administrators may also be allocated responsibility for one or more existing distributors in order to facilitate the process of amalgamation. All appointments will be limited to a maximum of 12 months. All existing General Managers and Chief Executives will remain in place and report to the appropriate Board or Administrator. The Boards and Administrators will have primary responsibility for the implementation of the agreed changes to the structure of distributors, as confirmed by the Minister, in time for the introduction of corporatisation legislation in the Budget session of Parliament. It will also be possible for the Minister to formally amalgamate existing distributors. The direction of reform will require a reduction in the number of distributors. This will be implemented following a period of review and consultation with the industry;
- the functions of the Electricity Transmission Authority (ETA) will be expanded to include the development and operation of an interim State wholesale electricity market. The composition of the ETA Board will be reviewed accordingly; and
- a specific provision will be added to the responsibilities and corporate charters of the distributors, Pacific Power and the Electricity Transmission Authority requiring the Boards of those bodies to respond to and implement Government policy on structural reform.
3.7 TIMETABLE
The Government has established a tight timetable for the implementation of its reform program.Following the introduction of enabling legislation, June, July and August will be a period of review in which the detail of the structural changes to be introduced into the generation and distribution sectors will be determined.
During the Budget session of Parliament (from September to November) the industry framework and corporatisation legislation will be introduced. The new generation and distribution bodies will then commence operation in December.
Establishment of the interim State wholesale electricity market by the Electricity Transmission Authority will be undertaken during this period, with the operation of the market commencing during the first quarter of 1996. Close coordination will be maintained with the NGMC to ensure that the operation of the State market will be consistent with the development and implementation of the national market.
APPENDIX 1 : References
BT Corporate Finance Ltd, The Relationship Between the Electricity Industry Structure and the Long Term Viability of Possible New South Wales Generation Businesses: A Scoping Study, May 1995.Bureau of Industry Economics, Electricity Update, 1994.
Government Pricing Tribunal, Paying for Electricity, An Interim Report, Volumes 1 and 2, October 1994.
Industry Commission, The Growth and Revenue Implications of Hilmer and Related Reforms, March 1995.
Industry Commission, Energy Generation and Distribution, Volumes I, II and III, May 1991.
London Economics, A Review of the NGMC National Market Trial, July 1994.
London Economics, Comparative Efficiency of NSW Metropolitan Electricity Distributors, Report 1, May 1994.
London Economics, Economies of Scale in the Electricity Generation and Distribution Sector, August 1994.
National Greenhouse Response Strategy, December 1992.
National Grid Management Council, Transition to a National Market, July 1993.
NSW Government, Submission to the Industry Commission Inquiry into the Supply and End Use of Electricity and Gas in Australia, Volume 1, August 1990.
Putnam, Hayes and Bartlett Ltd, Options for Corporatisation of The Electricity Commission of New South Wales, March 1991.
Steering Committee on National Performance Monitoring of Government Trading Enterprises, Government Trading Enterprises Performance Indicators 1989-90 to 1993-94, Volume 1: Overview, April 1995.
Travers Morgan, Review of Pacific Power's Marginal Cost Calculations, Volume 2, November 1993.
G Wilkenfeld and Associates Pty Ltd, Renewable Energy Resources in Electricity Supply and Use in NSW, May 1994.
Williamson O E and Winter S G, The Nature of the Firm, Oxford University Press, 1993.
1994 Report to the Scientific Assessment Working Group of the IPCC, Summary for Policy Makers.
APPENDIX 2 : Summary Statistics
- Pacific Power (Electricity Commission of NSW) Generation Capacity
- NSW Distribution Sector
- NSW Electricity Distribution Industry Customer Numbers 1993/94
- NSW Electricity Distribution Industry Revenue 1993/94
- NSW Electricity Distribution Industry MWh Sales 1993/94
Generation Capacity
| Location | Type of Generation | Year Installed | Capacity (MW) | Output pa (GWH) |
|---|---|---|---|---|
| | | | | |
| Bayswater | Coal | 1985/86 | 2640 | 16827.1 |
| Eraring | Coal | 1982/83/84 | 2640 | 13156.7 |
| Liddell | Coal | 1971/72/73 | 2000 | 6894.8 |
| Mount Piper | Coal | 1992/93 | 1320 | 5079.1 |
| Vales Point B | Coal | 1978/79 | 1320 | 6273.2 |
| Wallerawang C | Coal | 1976/80 | 1000 | 2222 |
| Lake Munmorah | Coal | 1969 | 600 | 1594.5 |
| Northern | Gas | 1982 | 100 | 0.6 |
| Koolkhan | Gas | 1982 | 95 | 0.7 |
| Hunter Valley | Gas | 1988 | 50 | 0.4 |
| Broken Hill | Gas | 1989 | 50 | 0.5 |
| Brown Mountain | Hydro | 1943/53/57 | 4 | 6.2 |
| Burrinjuck | Hydro | 1938 | 10 | 18.8 |
| Hume (NSW share) | Hydro | 1957 | 25 | 169 |
| Keepit | Hydro | 1960 | 6 | 4.2 |
| Shoalhaven | Hydro | 1977 | 240 | 4.4 |
| Warragamba | Hydro | 1959 | 50 | 0.2 |
Total Capacity 12150 MW
Total Output 52252.4 GWh
Peak Demand 9888 MW
Output and Peak Demand are 1993/94 actual.
| DISTRIBUTOR | SALES $M | SALES GWh | ASSETS $M | EMPLOYEES | CUSTOMERS (000's) |
|---|---|---|---|---|---|
| SYDNEY | 1664 | 16286 | 3088 | 3705 | 1069 |
| PROSPECT | 814 | 8290 | 1465 | 2192 | 514 |
| ILLAWARRA | 254 | 2636 | 490 | 952 | 232 |
| ORION | 343 | 3668 | 604 | 1054 | 193 |
| NORTH Namoi Valley | 36 | 298 | 86 | 174 | 19 |
| New England | 16 | 152 | 47 | 98 | 14 |
| North West | 38 | 334 | 66 | 230 | 30 |
| Northern Rivers | 157 | 1299 | 321 | 827 | 145 |
| Oxley | 67 | 600 | 158 | 351 | 68 |
| P-CCC | 39 | 357 | 79 | 227 | 29 |
| Tenterfield | 2 | 20 | 3 | 16 | 2 |
| NORTH | 355 | 3060 | 760 | 1923 | 307 |
| WEST Broken Hill | 24 | 284 | 35 | 64 | 12 |
| Central West | 52 | 482 | 82 | 162 | 26 |
| Ophir | 33 | 330 | 53 | 121 | 22 |
| Southern Mitchell | 33 | 340 | 61 | 99 | 17 |
| Ulan | 21 | 199 | 62 | 86 | 15 |
| Western Power | 61 | 618 | 121 | 196 | 33 |
| WEST | 224 | 2253 | 414 | 728 | 125 |
| SOUTH Monaro | 18 | 135 | 52 | 90 | 14 |
| Murray River | 97 | 1291 | 134 | 276 | 48 |
| Murrumbidgee | 40 | 390 | 79 | 114 | 23 |
| Northern Riverina | 19 | 165 | 290 | 79 | 15 |
| SW Slopes | 12 | 95 | 26 | 62 | 9 |
| Sth Riverina | 40 | 408 | 53 | 176 | 29 |
| Sth Tablelands | 46 | 426 | 121 | 261 | 38 |
| Tumut River | 13 | 135 | 22 | 61 | 10 |
| SOUTH | 285 | 3045 | 777 | 1119 | 186 |
| TOTAL NSW | 3939 | 39238 | 7598 | 11673 | 2626 |
Note: Prospect Electricity sales exclude sales to Sydney Electricity
CUSTOMER NUMBERS 1993/94
| Electricity Distributor | Residential (a) | Business | Public Lighting | Others (b) | Total |
|---|---|---|---|---|---|
| Central West | 20,816 | 4,706 | 9 | 577 | 26,108 |
| Monaro | 10,990 | 2,878 | 30 | 0 | 13,898 |
| Murray River | 39,003 | 6,357 | 348 | 1,953 | 47,661 |
| Murrumbidgee | 18,139 | 3,938 | 9 | 732 | 22,818 |
| Namoi Valley | 15,428 | 2,647 | 66 | 525 | 18,666 |
| New England | 12,686 | 1,564 | 5 | 0 | 14,255 |
| Northern Riverina | 12,597 | 2,007 | 11 | 18 | 14,633 |
| Northern Rivers | 129,287 | 15,756 | 62 | 10 | 145,115 |
| North West | 25,685 | 4,052 | 217 | 358 | 30,312 |
| Ophir | 19,175 | 2,626 | 3 | 40 | 21,844 |
| Oxley (NorthPower) | 59,738 | 7,722 | 4 | 176 | 67,640 |
| Peel-Cunningham | 25,358 | 3,192 | 28 | 221 | 28,799 |
| Southern Mitchell | 14,630 | 2,005 | 5 | 19 | 16,659 |
| Southern Riverina | 25,517 | 3,533 | 23 | 0 | 29,073 |
| Southern Tablelands | 33,372 | 4,911 | 8 | 213 | 38,504 |
| South West | 7,561 | 1,717 | 3 | 16 | 9,297 |
| Tumut River | 8,054 | 1,441 | 3 | 117 | 9,615 |
| Ulan | 13,365 | 1,436 | 7 | 195 | 15,003 |
| Western Power | 27,867 | 4,415 | 221 | 408 | 32,911 |
| Broken Hill | 10,202 | 1,191 | 4 | 150 | 11,547 |
| Tenterfield | 2,123 | 322 | 6 | 2 | 2,453 |
| Rural Total | 531,593 | 78,416 | 1,072 | 5,730 | 616,811 |
| Sydney | 958,994 | 110,165 | 81 | 0 | 1,069,240 |
| Prospect | 456,831 | 41,315 | 71 | 15,860 | 514,077 |
| Shortland (Orion) | 207,833 | 21,963 | 12 | 2,301 | 232,109 |
| Illawarra | 174,106 | 18,512 | 8 | 308 | 192,934 |
| Metropolitan Total | 1,797,764 | 191,955 | 172 | 18,469 | 2,008,360 |
| Industry Total | 2,329,357 | 270,371 | 1,244 | 24,199 | 2,625,171 |
(b) "Others" include institutions, process heating, irrigation, air conditioning, Telecom, cathodic protection, water pumping, sewerage pumping, public water supply, space heating, commercial cooking, municipal properties, contract lighting, night usage and unoccupied premises.
REVENUE 1993/94
| Electricity Distributor | Residential $000 | Business $000 | Public Lighting $000 | Others (d) $000 | Revenue from other sources(e) $000 | Total (d) $000 |
|---|---|---|---|---|---|---|
| Monaro | 6,224 | 11,675 | 60 | (364) | 633 | 18,228 |
| Central West | 16,148 | 14,561 | 305 | 474 | 649 | 32,137 |
| Murray River | 26,253 | 65,916 | 515 | 3,720 | 1,593 | 97,997 |
| Murrumbidgee | 12,662 | 21,526 | 314 | 5,227 | 1,003 | 40,732 |
| Namoi Valley | 13,966 | 18,197 | 170 | 4,539 | 1,798 | 38,670 |
| New England | 7,991 | 7,931 | 160 | (170) | 513 | 16,425 |
| Northern Riverina | 10,846 | 8,042 | 202 | (12) | 625 | 19,703 |
| Northern Rivers | 82,430 | 64,940 | 2,022 | 6,482 | 3,812 | 159,686 |
| North West (a) | 19,035 | 17,960 | 309 | 199 | 981 | 38,484 |
| Ophir | 14,928 | 17,557 | 152 | 186 | 830 | 33,653 |
| Oxley (NorthPower) | 35,334 | 30,003 | 358 | 1,248 | 1,932 | 68,875 |
| Peel-Cunningham | 19,528 | 18,215 | 228 | 221 | 714 | 38,906 |
| Southern Mitchell | 9,345 | 23,572 | 81 | (161) | 970 | 33,807 |
| Southern Riverina | 16,570 | 21,895 | 238 | 1,322 | 1,439 | 41,464 |
| Southern Tablelands | 23,129 | 20,312 | 298 | 1,880 | 1,985 | 47,604 |
| South West | 6,067 | 4,595 | 66 | (24) | 707 | 11,411 |
| Tumut River | 4,874 | 7,815 | 142 | 341 | 728 | 13,900 |
| Ulan | 9,706 | 11,247 | 143 | 118 | 454 | 21,668 |
| Western Power | 23,889 | 33,595 | 553 | 2,366 | 947 | 61,350 |
| Broken Hill | 5,977 | 16,861 | 242 | 527 | 730 | 24,337 |
| Tenterfield | 1,243 | 994 | 44 | 34 | 106 | 2,421 |
| Rural Total | 366,145 | 437,409 | 6,602 | 28,153 | 23,149 | 861,458 |
| Sydney (b) | 591,405 | 998,906 | 7,121 | 55,531 | 35,828 | 1,688,791 |
| Prospect (c) | 328,622 | 446,700 | 4,330 | 33,524 | 23,697 | 836,873 |
| Shortland (Orion) | 124,453 | 209,108 | 2,970 | 5,355 | 9,769 | 351,655 |
| Illawarra | 101,275 | 144,351 | 1,731 | 6,520 | 10,067 | 263,944 |
| Metropolitan Total | 1,145,755 | 1,799,065 | 16,152 | 100,930 | 79,361 | 3,141,263 |
| Industry Total | 1,511,900 | 2,236,474 | 22,754 | 129,083 | 102,510 | 4,002,721 |
(b) Excludes Sydney sales to Shortland (Orion Energy) of 13,837 MWh or $850,000 from "others" and "total" figures.
(c) Excludes Prospect sales to Sydney of 813,209 MWh or $58,935,000 from "others" and "total" figures.
(d) Includes adjustments for estimated revenues from unread meters and discounts /subsidies on tariffs, so that the total revenue matches with the electricity sales figure mentioned in the income and expenditure statement.
(e) "Revenue from other sources" includes the net cost or profit arising from private installation, appliances and services.
MWh SALES 1993/94
| Electricity Distributor | Residential MWh | Business MWh | Public Lighting MWh | Others (d) MWh | Total (d) MWh |
|---|---|---|---|---|---|
| Central West | 165,911 | 108,323 | 1,746 | 8,134 | 284,114 |
| Monaro | 62,050 | 72,278 | 671 | 0 | 134,999 |
| Murray River | 302,165 | 944,924 | 4,913 | 38,889 | 1,290,891 |
| Murrumbidgee | 165,670 | 168,702 | 3,587 | 52,194 | 390,153 |
| Namoi Valley | 112,290 | 156,041 | 1,820 | 28,087 | 298,238 |
| New England | 86,314 | 64,485 | 1,140 | 0 | 151,939 |
| Northern Riverina | 90,632 | 72,876 | 1,219 | 372 | 165,099 |
| Northern Rivers | 754,819 | 477,117 | 12,081 | 54,550 | 1,298,567 |
| North West (a) | 185,552 | 137,535 | 1,967 | 8,759 | 333,813 |
| Ophir | 154,635 | 171,702 | 2,111 | 1,248 | 329,696 |
| Oxley (NorthPower) | 358,543 | 221,121 | 4,520 | 16,173 | 600,357 |
| Peel-Cunningham | 192,706 | 154,788 | 2,570 | 7,301 | 357,365 |
| Southern Mitchell | 88,756 | 248,495 | 2,000 | 576 | 339,827 |
| Southern Riverina | 181,897 | 211,770 | 2,078 | 12,751 | 408,496 |
| Southern Tablelands | 213,368 | 192,294 | 3,770 | 16,237 | 425,669 |
| South West | 55,520 | 31,276 | 1,075 | 7,547 | 95,418 |
| Tumut River | 55,024 | 76,172 | 1,135 | 2,862 | 135,193 |
| Ulan | 85,446 | 111,745 | 947 | 1,325 | 199,463 |
| Western Power | 233,807 | 353,627 | 4,892 | 25,430 | 617,756 |
| Broken Hill | 61,902 | 217,674 | 1,566 | 3,689 | 284,831 |
| Tenterfield | 11,618 | 7,864 | 292 | 298 | 20,072 |
| Rural Total | 3,618,625 | 4,200,809 | 56,100 | 286,422 | 8,161,956 |
| | | | | | |
| Sydney (b) | 6,163,045 | 9,462,382 | 111,049 | 535,094 | 16,271,570 |
| Prospect (c) | 3,466,088 | 4,441,009 | 53,773 | 329,196 | 8,290,066 |
| Shortland (Orion) | 1,342,692 | 2,248,458 | 19,125 | 57,267 | 3,667,542 |
| Illawarra | 1,087,378 | 1,481,850 | 19,256 | 47,844 | 2,636,328 |
| Metropolitan Total | 12,059,203 | 17,633,699 | 203,203 | 969,401 | 30,865,506 |
| | | | | | |
| Industry Total | 15,677,828 | 21,834,508 | 259,303 | 1,255,823 | 39,027,462 |
(b) Excludes Sydney sales to Shortland (Orion Energy) of 13,837 MWh or $850,000 from "others" and "total" figures.
(c) Excludes Prospect sales to Sydney of 813,209 MWh or $58,935,000 from "others" and "total" figures.
(d) Excludes adjustments for unread meters.
If you have queries on any aspect of the reforms, please contact Warwick Watkins Electricity Task Force, NSW Treasury.