Part 6: New planning and reporting framework

Electricity Commission: Review of the first five years.

6.1
In this Part, we describe the work the Commission has carried out to develop its planning and reporting framework. We discuss:

6.2
We commend the Commission for the work that it has done in preparing the electricity and impact indicators.

6.3
Although it has taken three years to prepare the indicators, we consider that the Commission's collaborative and staged approach has resulted in a reasonably robust set of indicators. They provide a sound basis to begin to measure how effective the Commission is. We, as well as the Commission, expect these indicators to evolve over time.

Background

6.4
In the past, the Commission has had difficulty in reporting meaningfully how the work that it has done in meeting the Government Policy Statement requirements and its SOI performance targets has contributed to meeting high-level government policy objectives and outcomes. The appointed auditor and the Parliamentary Commissioner for the Environment raised this difficulty in the past. However, the Commission resolved this issue (as noted in the June 2008 annual report) by linking its work to the principal objectives and outcomes in the Act (see paragraphs 4.18-4.20 for more information).

6.5
In the last three years, the Commission has prepared and put in place a planning and reporting framework.

6.6
When it was established, the Commission identified six core workstreams to achieve the Government's desired outcomes. These workstreams, which were subsequently increased to eight, constituted the "building blocks" for the Commission's day-to-day work during its set-up and development phases, and then continued to be the focus of its work programme.

6.7
The Commission devised outcomes for each workstream, but the activities underpinning the outcomes were largely task-oriented. During 2006/07, the Commission enhanced its understanding of the relationship between its activities and the desired outcomes. The Statement of Intent 2006-2009 set out the relationships between the activities the Commission carried out and the outcomes (or results) it sought. The SOI noted that the relationships are complex and are strongly influenced by a range of factors. The Commission has limited control over some of these factors, but others lie outside its control or direct influence.

6.8
During 2006/07, the Commission prepared a planning and reporting framework. The planning and reporting framework translated the principal objectives and specific outcomes in the Act and the Government Policy Statement into medium-term strategic priorities and a work programme.

6.9
During 2006/07, the Commission prepared and consulted on a set of draft principal objectives statements (including an explanatory statement, a usage statement, and a relationship statement). It published the finalised statements in its 2006/07 annual report.

6.10
The planning and reporting framework also included:

  • "electricity indicators", which are statistics or indicators that help to provide a high-level view of the status of the electricity sector; and
  • medium-term strategic priorities that translate the long-term principal objectives, specific outcomes, and Government Policy Statement requirements into a set of priorities to help the Commission prioritise its work programme.

Electricity Commission objectives in its Statement of Intent 2009-2012

6.11
During 2007/08, the Commission agreed on four objectives that link its work to the principal objectives and specific outcomes in the Act and to the requirements of the Government Policy Statement. These were included for the first time in the Commission's Statement of Intent 2008-2011. The four objectives were refined to three in the Statement of Intent 2009-2012.

6.12
The three objectives are:

  • well-functioning markets;
  • sufficient, reliable supply; and
  • efficient use and environmental sustainability.

6.13
The Commission has also sought to address for each objective:

  • why it is a priority - that is, the factors that the Commission has considered in developing each objective and its planned actions;
  • what the Commission will do to achieve the objective - that is, the main priorities or outputs that the Commission is carrying out to achieve the objective; and
  • how the Commission will demonstrate success (its impact indicators).

Electricity indicators and impact indicators for each objective

6.14
The Commission has identified a number of electricity indicators that provide a high-level picture of the state of aspects of the electricity sector over which the Commission has varying degrees of influence.

6.15
The electricity indicators are not directly within the Commission's control. It is not always possible to determine cause and effect for changes in these indicators because other external factors are important - for example, the changing balance of the use of electricity and other energy sources. Electricity indicators do, however, influence decisions about the Commission's objectives and work priorities (see Figure 2).

Figure 2
How the Electricity Commission will use indicator information

Figure 2: How the Electricity Commission will use indicator information.

Source: Electricity Commission's Statement of Intent 2009-2012.

6.16
The Commission has also identified impact indicators for each objective. Although impact indicators are influenced by external factors and the actions of other parties, the Commission considers that it has more influence over these indicators and that they therefore provide information on the difference that the Commission is seeking to make for the electricity sector.

6.17
Figure 3 sets out the objectives, how the Commission seeks to contribute to achieving those objectives, the electricity indicators it will monitor, and how it is going to demonstrate success (its impact indicators).

Reviewing electricity and impact indicators

6.18
The Commission told us it will take a couple of years before it can assess meaningful trends and information provided by the impact indicators. Meanwhile, the Commission intends to keep the electricity and impact indicators under constant review. It will update indicators as significant pieces of work identify more appropriate indicators. For example, the market design issues paper1 identified some of the current set of electricity indicators.

6.19
The Commission is using the new indicators in its reporting for 2008/09 and will include a report in the 2008/09 Annual Report. We will be watching the Commission's progress in assessing the effectiveness of its work.

Figure 3
Links between the Electricity Commission's objectives, its contributions to the objectives, and indicators

Well-functioning markets Objective and what the Commission is seeking to achieve
Ensuring that the electricity system and markets operate fairly and efficiently to meet the needs of consumers involves:
  • effective and efficient day-to-day management of the wholesale, retail and ancillary service markets
  • ensuring that the needs of consumers for reliable service and reasonable price are appropriately balanced
  • enabling innovation and investment that meets current and future energy demand
  • ensuring market mechanisms provide appropriate signals and incentives for investment
  • ensuring there are appropriate checks and controls in place, including those that protect consumers.
The Commission seeks to contribute through:
Core systems - providing the core services, and monitoring and enforcing contracts needed for the operation of the electricity system and wholesale and retail markets.

Market Development Programme - examining and, where efficient, improving pricing signals for the wholesale and retail markets. Enhancing the incentives for market participants to manage risks in a way that contributes positively to the performance of the markets.

Consumer protection - developing, monitoring and enforcing appropriate consumer protection mechanisms.

Information - ensuring robust information and analysis is available to assist in decision-making by policy-makers, market participants and consumers.

Market governance - providing information to improve adherence with the regulations and rules that govern the electricity system and markets and monitoring and managing compliance.
Electricity and impact indicators
Electricity indicators
  • Electricity company market share (generation and retail)
  • Consumer switching and market share of "incumbent" retailers
  • Electricity consumer prices
Impact indicators
  • The number of rule breaches reduces
  • The number of advanced meters installed increases
  • Satisfaction with the hedge market increases - as measured by the two-yearly hedge market survey

Sufficient, reliable supply Objective and what the Commission is seeking to achieve
A sufficient, reliable supply is achieved when the electricity system can meet current demand and reasonably foreseeable demand. Ensuring sufficient, reliable electricity supply involves:
  • timely investment in generation capacity, transmission infrastructure, distribution services, and demand-side initiatives
  • regulation of monopoly elements of the system to ensure efficient operation and effective performance
  • management of supply risks such as low inflow years within the agreed policy for the cost/insurance trade-offs
  • secure and efficient management of the electricity system on a day-to-day basis, which develops in line with demand patterns, new technology, and the evolution of the wider electricity environment.
The Commission seeks to contribute through:
Core systems - providing the core services needed for operation of the electricity system, and undertaking work to improve the operation of the electricity system.

Security development programme - development work to improve the operation of the electricity system and markets during dry years and other shortages, including:
  • monitoring and facilitating the management of generation supply risks, for example publishing the hydro risk information, thermal generation fuel stocks
  • advising the Government on security of supply policy
  • carrying out security of supply governance functions including monitoring, advice on security, and procurement of reserve energy, if necessary.
Information - providing independent analysis of future demand, high-level generation scenarios and transmission options. Publishing a comprehensive centralised data set and other information to assist analysis and decision-making by investors.

Transmission investment decisions - facilitating timely processes and appropriate decisions for economic grid investment.

Ensuring plans and arrangements are in place to manage shortage of supply emergencies, if needed.

If necessary, taking action to ensure security of supply in line with the Government's policy.
Electricity and impact indicators
Electricity indicators
  • New Zealand energy winter margin
  • Transmission system minutes interrupted (an internationally used indicator of system reliability)
  • Consumer interruption indicators (SAIDI, SAIFI, CAIDI)*
Impact indicators
  • Total value of grid investment approvals/declines**
  • The security margin is maintained or increased
  • The amount of contracted reserve energy required reduces
  • The operation of the electricity system meets quality and reliability standards - as indicated by breaches of Principal Performance Obligations
  • The operation of the electricity system meets frequency management standards - as indicated by the number of frequency excursions

Efficient use and environmental sustainability Objective and what the Commission is seeking to achieve
There are world-wide developments in energy, including a drive for sustainability and efficiency, that impact on New Zealand and the future development of the electricity system. These include:
  • new technologies for generation (including small and micro-scale), transmission, and electricity system management
  • new technologies for electricity end-use and demand-side management
  • changing patterns of fuel availability, use and cost
  • increasing awareness of the energy sector and its influence on economies and climate
  • developing understanding of the operation and impacts of emissions trading.
The Commission seeks to contribute to:
  • improved efficiency of generation, transmission, distribution and electricity use
  • removal of barriers to renewable generation
  • improved environmental sustainability of the electricity sector by providing information, facilitation of voluntary arrangements, and development of regulation.
The Commission has several projects that will help improve electricity efficiency and environmental sustainability. However, many of the impacts of electricity production and delivery are addressed by regional and local authorities and the Environment Court through the Resource Management Act 1991 the Commission has limited involvement in these processes.
The Commission seeks to contribute through:
Transmission investment decisions - ensuring that transmission investment decisions address transmission alternatives and potential future renewable generation.

Market Development Programme - including:
  • providing analysis of the implications of potential developments for the New Zealand electricity system
  • progressing the understanding of variable generation and its implications for the electricity system
  • completing work on improvements to facilitate integration of wind generation into the electricity system
  • identifying and advancing initiatives to improve efficiency and minimise losses in the electricity system
  • progressing work on improving load management
  • developing solutions to remove undue barriers to the development of renewables, small-scale generation and demand-response initiatives.
Electricity efficiency programmes - investing in end-use electricity efficiency initiatives where these are cost-effective.
Electricity and impact indicators
Electricity indicators
  • Electricity generation by fuel type
  • Percentage of electricity generation from renewable resources
  • Thermal electricity generation gross CO2 equivalent emissions
Impact indicators
  • The number of GWh saved from electricity efficiency programmes increases
  • The amount of CO2 saved from electricity efficiency programmes increases
  • Savings in [megawatt hours] peak demand from electricity efficiency programmes increase
  • Electricity efficiency programmes are cost-effective delivered at below the cost of constructing equivalent new generation

* SAIDI: indicates the total amount of time (in minutes) the average consumer is without supply over the course of a year. SAIFI indicates how often a consumer, on average, experiences an outage during the course of a year. CAIDI indicates the average duration of a single outage (in minutes).
** Noting that a declined transmission investment proposal is likely to result in a new application.

Source: Electricity Commission's Statement of Intent 2009-2012.

1: Issues Paper - Survey of Market Performance, available at www.electricitycommission.govt.nz.

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