New Regulations on Distributed Generation for New Zealand Electricity Sector – Bell Gully

By Andrew Abernethy, Partner and Chris Hay, Senior Associate | Tuesday 4 September 2007

New regulations governing the connection of distributed generation to lines company networks came into effect on 30 August 2007.

Distributed generation is electricity generation that is physically located within an existing lines company network and which therefore does not export electricity directly into the national grid. It can range from small photovoltaic arrays on house tops to larger wind, hydro or gas powered installations.

The Electricity Governance (Connection of Distributed Generation) Regulations 2007 (the DG regulations) were made under the Electricity Act 1992 and provide mandatory processes, and default terms and pricing principles when a generator of electricity within an existing lines company network seeks to connect to that network for the purposes of exporting electricity.

Various forms of DG regulations have been contemplated since 2003. The major points to note in the final regulations are:

The DG regulations provide a process which must be followed where an embedded generator applies for connection to a distributor’s network. This process requires distributors to connect a generator if required to do so by the DG regulations. Distributors cannot contract out of these mandatory approval provisions.

If the distributor and generator cannot agree separate contractual terms, the DG regulations specify terms (the regulated terms) that govern the connection agreement between the parties. The regulated terms are therefore a mandatory baseline against which connection negotiations between distributors and generators will take place.

A distributor and a generator may enter into an agreement outside regulated terms, by mutual agreement.

The DG regulations contain “pricing principles” which apply in the circumstances where the connection is made on the basis of the regulated terms. These principles among other things, require that, unless agreed otherwise, connection charges in respect of distributed generation must not exceed the incremental costs of providing connection services to the distributed generation. The connection charges are to be calculated net of transmission and distribution costs, which an efficient service provider would be able to avoid as a result of the connection of the distributed generation (i.e., avoided cost methodology).

The DG regulations provide a default set of dispute resolution rules which apply to breaches of the regulated terms or of the DG regulations.

Distributors must use, in respect of all generators, the same reasonable efforts in processing applications for connection of distributed generation (irrespective of a distributor’s direct or indirect interests in the generation).

The DG regulations provides certain timeframes for the approval of applications and the connection of distributed generation. Distributors are required to report to the Electricity Commission on an annual basis in relation to their compliance with these timings.
Regardless of whether distributors are currently engaged in negotiating distributed generation connection, each distributor from 30 August 2007 is required to make publicly available (free of charge) from both office and internet site the following:

application forms for connection of distributed generation1;

the distributor’s connection and operation standards (including, a congestion management policy, emergency response policy and the distributor’s safety standards); and

a copy of the regulated terms, together with an explanation of how the regulated terms will apply if:

approval to connect distributed generation is granted; and

the distributor and the generator do not enter into a connection contract outside the regulated terms;

a statement of the policies, rules, or conditions under which distributed generation is, or may be, curtailed or interrupted from time to time in order to ensure that the distributor’s other connection and operation standards are met; and

the application fees specified by the distributor in respect of applications for connection of distributed generation.
It is therefore important for all lines companies to ensure that their current policies and application forms are updated and published to reflect the new requirements of the DG regulations. We would of course be happy to assist in this task.

1 The application forms must specify the information (including any supporting documents) that must be provided with an application

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