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NEW ZEALAND GAZETTE, No. 139

29 OCTOBER 2004

signalling (including the signals for new transmission investment). The loss and constraint
rentals arising out of the spot market provide the appropriate underpinning for FTRs.

3

The Government’s expectations in relation to FTRs are specified below.

Guiding principles for an FTR market

4

Realistic long term risk management mechanisms must be made available to end users and to
competing retailers.

5

Economic efficiency is a critical goal that should be pursued in a robust but realistic fashion. The
concept of economic efficiency includes the integrity of nodal price signals for price-sensitive
generation, consumption and investment decisions.

6

FTR design and allocation should give priority to ensuring consumers have access to competitive
markets, particularly in regions subject to transmission constraints, but otherwise have due
regard to preserving continuity with established price relativities and commercial arrangements.

7

Pragmatic solutions must be developed which are implementable and endurable.

8

Transpower should not be required to take on commercial risk as a result of FTR arrangements
without the agreement of Transpower’s Board.

9

The design of FTR arrangements should mitigate and manage risk to distribution companies.

FTR policy framework

10

Transpower should continue to receive loss and constraint rentals, and should use the rentals to
fund an FTR product.

11

A market for short to medium term FTRs should be introduced covering the interconnected grid
(with or without spur lines).

12

Some or all of Transpower’s off-take customers (including distribution companies and direct
connect customers) should be offered a long term allocation of FTRs.¹² If a distribution company
prefers that its allocation be given to an agent appointed by the distribution company and
approved by the Electricity Commission, Transpower should allocate the relevant FTRs to the
agent.¹³ FTR recipients should be able to refuse an allocation.

13

Recipients of allocated FTRs should be able to put their FTRs into an auction and assign reserve
prices in accordance with the process developed by the Electricity Commission. In this case,
they should receive the value assigned to those FTRs by the auction (subject to the price
exceeding the reserve). If the value assigned by the auction does not exceed the reserve price,
the original recipient should retain the FTR.

14

Transpower should pass any excess FTR auction income (auction income not paid to those who
put allocated FTRs back into the auction), residual rentals (rentals not utilised in the FTR market)
and any income received as payment for an FTR allocation, less appropriate expenses, to those
that pay Transpower’s charges for sunk and new investments.

15

A distribution company should pass through rental-related or FTR-related cash flows to the
distribution company’s customers, retailers, and/or end users. The pass through should be
transparent, should not discriminate between parties in a like position, and should as far as
possible be non-distortionary. It should be consistent with the guiding principles for an FTR
market, and in particular have due regard to promoting competition between retailers.

¹² This focus on off-take customers does not preclude other customers from receiving a similar long
term allocation.

Subsequent references in this policy statement to distribution companies should be read as
applying also to an agent appointed by a distribution company to manage the distribution
company’s role under this policy statement.

¹³