Part 10: Electricity Commission – Audit of performance information

Central government: Results of the 2003-04 audits.

The Electricity Commission

10.1
The Electricity Commission (the Commission) is a new Crown entity established under the Electricity Act 1992 to oversee New Zealand’s electricity industry and markets. The Commission began operating in September 2003.

10.2
The objectives of the Commission are–

(a) to ensure that electricity is produced and delivered to all classes of consumers in an efficient, fair, reliable, and environmentally sustainable manner; and

(b) to promote and facilitate the efficient use of electricity.1

10.3
The Commission is a public entity under the Public Audit Act 2001, and is therefore audited by the Auditor-General.

The Auditor General’s role

10.4
As well as being the statutory auditor of the Commission, the Auditor-General has a specific role under the Electricity Act 1992 in relation to the Commission’s performance information.

10.5
There are 2 parts to this role:

  • The Commission must agree performance standards with the Minister of Energy. Before agreeing the performance standards, the Minister of Energy must consult with the Auditor-General on whether the proposed performance standards meet certain requirements specified in the Act.
  • The Commission must provide an annual performance report to the Minister of Energy, and submit that report to the Auditor-General for an assurance audit.

10.6
This article describes how we have undertaken this role in the 2003-04 year, and also explains the legislative background.

Amendments to the Electricity Act 1992

10.7
The Electricity Amendment Act 2001 (“the Amendment Act”) was passed into law in August 2001.

10.8
The Amendment Act was, in part, designed to encourage the electricity industry to develop its own responses to issues in the energy sector through industry governance organisations.2 The Amendment Act also provided for the establishment of a statutory Electricity Governance Board, if the electricity industry failed to meet the Government’s objectives for the electricity sector and agree on self-regulatory arrangements.

10.9
The Amendment Act also provided for the accountability of electricity governance organisations, by requiring the Auditor-General to undertake the two-part role described in paragraph 10.5.3

10.10
Because the industry failed to establish a self-regulatory model, the Government moved to implement its own governance arrangements for the sector, using sections in the Amendment Act.

10.11
On 20 May 2003, the Government announced the establishment of the Electricity Governance Board, operating under the name “the Electricity Commission”, and the Electricity (Commencement of Electricity Governance Board) Order 20034 formally established the Commission on 15 September 2003.

10.12
The Electricity and Gas Industries Bill was then introduced to the House of Representatives, in October 2003. Among other things, the Bill reflected the establishment of the Electricity Commission, and updated the Electricity Act 1992 accordingly.

10.13
The Bill was divided into 4 pieces of legislation at the time of its final reading in the House. One of these, the Electricity Amendment Act 2004, carried forward the provisions from the 2001 Amendment Act, and the Electricity and Gas Industries Bill, relating to the Auditor-General’s role.

Performance standards

10.14
Section 172ZL of the Electricity Act 1992 states –

(1) The Commission must, within 3 months after the commencement of each reporting period beginning on or after 1 July 2004, agree performance standards with the Minister for that reporting period.

(2) The performance standards –

(a) must include the performance targets and other measures by which the performance of the Commission may be judged; and

(b) must be matters against which the Commission’s actual performance may be reported and audited; and

(c) must relate to all of the GPS objectives and outcomes.

(3) Before agreeing the performance standards, the Minister must consult with the Auditor-General on whether the proposed performance standards meet the requirements in sub-section (2)(b) and (c).

10.15
The Commission developed a set of performance standards for the period 1 July 2004 to 30 June 2005, and provided them to the Auditor-General for review.5

10.16
Our review of the Commission’s performance standards largely focused on the 2 matters (sub-section (2)(b) and (c)) that the Minister is required to consult the Auditor-General about.6

10.17
In relation to the first matter, we were satisfied that the standards can be reported against, and that they are auditable.

10.18
In relation to the second matter, we saw this as a “completeness test”. We were looking for close alignment between the performance standards and the draft Government Policy Statement (GPS).7 We were satisfied that the standards developed by the Commission were aligned with the GPS.

10.19
The Commission’s performance standards will evolve over time. We will work with the Commission to enhance the standards for future reporting periods.

Annual performance report

10.20
Section 172ZM of the Electricity Act 1992 states –

(1) The Commission must, within 3 months after each of the Commission’s report dates on and after 30 June 2004, deliver to the Minister a report on its operations during the last reporting period, and submit that annual report to the Auditor-General for an assurance audit under section 172ZO.

(2) The annual report –

(a) must contain the information that is necessary to enable an informed assessment to be made of the performance of the Commission against the GPS objectives and outcomes and against the performance standards; but

(b) need not contain information on the Commission’s financial performance.

10.21
Section 172ZO of the Electricity Act 1992 states –

(1) The Auditor-General –

(a) must examine the annual report provided to the Auditor-General under section 172ZM and report to the Minister and the House of Representatives as soon as practicable after receiving the annual report:

(b) may, at any time, examine the information to be contained in the annual report and the systems of the Commission, and report on that examination to the Minister and the House of Representatives.

(2) The Auditor-General’s report under subsection (1) must provide assurance on –

(a) the appropriateness, adequacy, and accuracy of the information contained, or to be contained, in the annual report; and

(b) whether the annual report enables, or is likely to enable, an informed assessment to be made of the matters stated in section 172ZM(2)(a).

10.22
The Commission prepared a performance report for the period 15 September 2003 to 30 June 2004, which was approved by the Chair of the Commission in December 2004. In terms of section 172ZO, we then carried out an assurance audit on that report, and submitted our report to the Minister of Energy and the House of Representatives in February 2005.

10.23
The Commission’s annual performance report noted –

The requirement that performance measures be agreed with the Auditor-General at the start of each year was amended in the Electricity Amendment Act 2004, and only applies from 30 June 2004. As such, no performance measures were agreed with the Auditor-General covering the 2003/04 reporting period. Therefore in preparing this report the Commission has focussed on providing an overview of the Commission’s establishment and reported against the performance measures in the 2003/04 Statement of Intent.8

10.24
In our audit opinion on the Commission’s annual performance report, we reiterated the observations quoted in the previous paragraph. The Commission was established on 15 September 2003, and was not required to establish performance standards against which the Commission would be assessed until the year commencing 1 July 2004. Instead, in the annual performance report, the Board reported its service performance achievement against the Statement of Corporate Intent for the period 15 September 2003 to 30 June 2004.

10.25
Our opinion was therefore expressed on those service performance achievements that were reported by the Commission. We noted that the service performance information fairly reflected the Commission’s service performance achievements, as measured against the performance targets adopted in the Commission’s Statement of Intent, for the period 15 September 2003 to 30 June 2004. Change to the Auditor-General’s role for future reporting periods

10.26
The House of Representatives passed the Public Finance (State Sector Management) Bill on 16 December 2004. The 4 resulting pieces of legislation are the:

  • Public Finance Amendment Act 2004;
  • State Sector Amendment Act 2004;
  • Crown Entities Act 2004; and
  • State-owned Enterprises Amendment Act 2004.

10.27
The Crown Entities Act amends the sections in the Electricity Act 1992 that deal with the Auditor-General’s role (see paragraphs 10.4-10.5 on page 93), to align that role more closely with the existing statutory accountability requirements of the Commission – the Statement of Intent and the Annual Report.

10.28
In relation to the development of performance standards that are now required to be included in the Commission’s Statement of Intent, the new timeframe for finalising the Statement of Intent is earlier than the current timeframe (in which the Commission has 3 months after the commencement of each reporting period to agree performance standards). The requirement for the Minister to consult with the Auditor-General remains.

10.29
Concerning the annual performance report of the Commission, the information that was required to be included in this report is now required to be included in the Commission’s Annual Report.

10.30
There is also a change to our reporting of the audit of that information – we may either report on it in the audit report on the Commission’s Annual Report, or continue to report separately to the Minister and the House of Representatives.

10.31
These amendments will take effect from the first year the Commission prepares a Statement of Intent under the Crown Entities Act. This will be for the year commencing 1 July 2006.

1: Section 172N(1) of the Electricity Act 1992 (as amended by the Electricity Amendment Act 2004).

2: The Electricity Governance Establishment Committee was formed in October 2000. The Committee had been working to establish a single industry electricity governance organisation known as the industry Electricity Governance Board.

3: If the statutory Electricity Governance Board was established under the Electricity Amendment Act 2001, which it subsequently was, the Auditor-General was required to undertake only the second part of the two-part role (that is, an assurance audit). The requirement for performance standards to be agreed with the Minister, and for consultation to occur with the Auditor-General on those performance standards, applied only to electricity governance organisations other than the statutory Electricity Governance Board. This was subsequently changed in the Electricity Amendment Act 2004, to require the Auditor-General to undertake both parts of the role.

4: SR 2003/200.

5: While the legislation requires the Minister of Energy to consult with the Auditor-General, in practice we worked with the Electricity Commission to be satisfied that its performance standards met the requirements specified in the legislation. We then provided assurance to the Ministry of Economic Development, as the agent of the Minister of Energy, that the performance standards met the legislative requirements.

6: When we carried out our work, the Electricity Amendment Act 2004 had not been passed. We were therefore undertaking our role based on the proposals in the Electricity and Gas Industries Bill.

7: The final Government Policy Statement was published on the same day as the Electricity and Gas Industries Bill was passed. When we reviewed the Commission’s draft performance measures, we were using a draft version of the Government Policy Statement.

8: Paragraphs 2 and 3 from the Annual Performance Report to the Minister of Energy 15 September 2003 Electricity Commission Establishment to 30 June 2004.

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