Lines companies, communities and future of energy

Belinda Mackay

Recently the Eastland Group and Trust Tairāwhiti announced their decision to sell Eastland Network, the local lines company. It would be fair to say that it hasn’t been a popular decision, with many people concerned by such fundamental infrastructure passing out of community ownership. This intense emotional connection that many people feel for Eastland Network is a product of history — the development of the lines network was closely tied to the development of Tairāwhiti, underpinning modernisation and economic growth, connecting the far-flung settlements of our region.

Eastland Group and Trust Tairāwhiti have put forward their arguments in favour of the sale. These include the need for significant funds that can be invested in new business opportunities by Eastland Group and invested in the community (via Trust Tairāwhiti). They also argue that the heavy government regulation of lines companies gives a measure of protection to the community, ensuring that consumers will continue to have good service and the lights won’t go out.

While the Gisborne Chamber of Commerce doesn’t have a formal position on whether the sale of Eastland Network is a good or bad idea, we do care about the public conversation around the sale, and the important issues involved. This includes questions about private and public ownership of critical infrastructure, the future of energy resilience in Tairāwhiti, and how we will meet the significant challenges of the unfolding climate crisis. Electricity distribution businesses like Eastland Network are not only at the heart of our community, they are pivotal to upcoming changes to our energy system designed to move the country to Net Zero by 2050.

As our contribution to the debate, the Gisborne Chamber invited Angela Ogier, director of hydrogen and energy transition at consulting firm EY, to give a public presentation about the role of lines companies in Aotearoa’s energy system. Having studied engineering in New Zealand, and completed a Master of Business Administration in the UK, Angela has worked on energy sector projects in the UK, France, Nigeria, Australia and Aotearoa. Along with her broad knowledge of international energy markets, she is leading discussions in this country about what it will take to transform our energy systems to meet the challenges of climate change.

What did Angela have to say? Most importantly, Aotearoa has an emissions problem. We have 10 years to reduce global emissions to keep climate warming to 1.5 degrees. In Aotearoa, 41.6 percent of emissions come from energy, as the economy depends on fossil fuels like petrol, diesel, gas, oil and coal. Over the next 30 years, 55 percent of our total energy use will need to come from electricity, and all of this will need to be renewable generation, including wind, solar, geothermal and hydro. Rooftop solar will play a significant role in the future of our energy supply, and comes with intermittancy issues that will require big changes in the way the grid works. We will see a huge increase in batteries, smart appliances that manage their energy use (when and how they draw power), and of course electric vehicles. EVs not only provide transport, they can also act like a domestic battery, drawing power from the grid at low prices, and then selling the energy back when the price is higher.

Three global trends that Angela highlighted will change the role of lines companies over the next few years. The first, decentralisation, takes focus away from dams and central generation, and replaces it with more local generation (such as rooftop solar). The second, digitalisation, is about smart appliances as well as consumers exporting back to the grid, creating a two-way conversation with your energy company. The third, decarbonisation, is the shift away from fossil fuels. As Angela put it, the next few years will involve a radical change in our relationship with the electricity network. Historically, our connection to the network comes through the powerpole outside your house, and receiving a monthly bill from your electricity retailer. This will be replaced by a much more dynamic relationship, where the lines company will know in real time what you are doing with your power consumption, and you’ll play a role in managing the peaks and troughs in electricity supply.

Lines company ownership, an emotionally charged issue for the Tairāwhiti community now that Eastland Network is for sale, was another topic Angela covered in her talk. There are 29 lines companies in Aotearoa (Australia has just six). Three of these are privately held; the rest are publicly owned. The lines companies range in scale from less than 10,000 connections (Buller Energy, which covers an enormous geographic region) to over 500,000 (Vector in Auckland, with a relatively small geographic footprint).

Angela made the point that government regulation does seem to be doing an OK job. Part 4 of the Commerce Act 1986 aims to protect customers by regulating the price and quality of goods and services for the benefits of consumers. It applies to gas networks, electricity networks and airports, to ensure these monopolies can’t exploit consumers who have no choice but to connect to their network, and that they can’t discourage new technologies which could affect their revenue. Regulation ensures there are safeguards around the level of service to customers. In this sense, regulation is actually like a handbrake on lines companies, stopping them from over-investing and gold plating their assets in order to generate the biggest returns.

And then there was the question of lines company performance. How reliable are they? On average, nationally there was 200 minutes of disruption per customer, and customers suffered power cuts 1.9 times per year. Interestingly, there were no obvious trends related to public or private ownership. Neither one seemed to invest more in their networks, and neither ownership model seemed to have an impact on performance. In fact, the percentage of lines underground was a much stronger indicator of performance; the more lines buried, the better service to customers. The best performing lines companies were a mix of private, trust/consumer and council-owned.

Perhaps unsurprisingly, Angela’s final point was that there are benefits to both private and public ownership of lines companies. Private owners have access to more and lower-cost capital, and they can make faster investment decisions. They are often bigger scale and have better access to new technologies and talent. They also avoid the risk of being captured by community interest groups. The benefits of public ownership include the lines company acting as a platform for economic growth, and as a mechanism to address energy poverty in a community and the urgent work of decarbonisation. With public ownership, profits are returned to the community, and smaller companies can avoid more complicated regulation and have greater flexibility.

This excellent presentation finished with four key questions that Angela suggests the Tairāwhiti community should be asking about the proposed sale of Eastland Network. One, how is the lines company going to invest in asset resilience? Two, how can community interests be protected? Three, how do you create a platform to address energy poverty and decarbonisation? Four, how do you ensure the people in Tairāwhiti can have the best access to new technologies to address energy challenges?

The Gisborne Chamber of Commerce will be watching closely to see how Eastland Group and Trust Tairāwhiti manage the sale of Eastland Network, and how they answer these questions in any deal they negotiate with a new owner.

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