29 OCTOBER 2004 NEW ZEALAND GAZETTE, No. 139 3453

36 Key components of security of supply are that:

• Sufficient generation capacity is built or energy efficiency improvements made to meet
  ongoing demand growth
• Hydro and thermal generating capacity and fuels are appropriately managed, to deal with
  the risks of extended dry hydro periods better than we have in the past
• The system has sufficient reserve energy (plant and fuel, or contracted demand response)
  to cope with extreme dry sequences or other unexpected supply disruptions
• The national grid and distribution lines meet specified reliability objectives. (Transmission
  and distribution issues are covered in separate sections).

Security of supply objective for the Electricity Commission

37 A function of the Electricity Commission under the Electricity Act 1992 is to use reasonable
endeavours to ensure security of supply, without assuming any demand reduction from
emergency conservation campaigns, while minimising distortions to the normal operation of the
electricity market. In particular, the Government wants the Commission to use reasonable
endeavours to ensure security of supply in a 1 in 60 dry year. The Commission should also work
with stakeholders to identify industry contingencies and develop strategies consistent with the
operation of the electricity market to achieve its security of supply objectives.

Information, modelling and forecasting

38 The Commission should undertake and publish detailed supply and demand modelling and
forecasting at least annually. The objective is to provide well-researched information on short
and long term security of supply, including likely availabilities of fuels, new generation options,
and likely price trends under various scenarios.

39 The Commission should ensure that public information is provided on:

• thermal fuel availability
• hydro lake levels
• hydro spill
• generation capacity.

40 To establish the need for additional reserve energy (see below), the Electricity Commission
should look out 3 to 5 years in more detail (given consent and construction timelines for new
capacity), collect information, develop a baseline that makes assumptions about what known
projects are likely to proceed, and identify any \'shortfalls\' year by year. The need for additional
reserve energy should be based on dry year risk taking into account prudent assumptions about
availability of other plant.

Security of supply policy

41 The Electricity Commission should develop, consult on and publish a security of supply policy.
The security of supply policy should specify the steps that the Commission will take at various
stages during a contingent event such as an extended dry sequence. It should also include its
procurement policies for reserve energy. The overriding objective is to give as much certainty as
possible to the market.

42 The Commission should develop and publish an operational security of supply standard, possibly
expressed as a loss of load expectation.

Minimum hydro zone

43 To help ensure security of supply, the Electricity Commission should develop and publish a
minimum hydro zone giving its estimate of minimum hydro storage levels required at different
times of the year to avoid the risk of shortages in a 1 in 60 dry year. This minimum zone should
take into account the expected availability and use of thermal generation. The minimum hydro
zone should not be catchment-specific but should be national or based on regions defined by
likely transmission constraints during a dry hydro period.

44 The Commission should consult with interested parties in developing the minimum hydro zone.