Utility Automation Associate Editor
Note: Steven Wood traveled to New Zealand in June as a guest of the New Zealand Trade Development Board. During his week-long visit, he interviewed more than 20 companies involved in the utility industry, government officials and utility companies to ascertain the pros and cons of New Zealand`s reform and New Zealand companies` interest in the U.S. electricity market.
New Zealand, a country about the geographic size of California, recently went through several years of electricity reform. The reform effort has put the country in a tailspin. While companies that supply the utilities market are looking at new markets, the industry is looking at the structure and reliability of its electricity grid. And consumers are wondering when the savings will start.
Providing electricity in New Zealand is challenging, with its long narrow electrical grid spanning two islands via an inter-island high voltage direct current link which has the capability to transfer electricity in either direction. Two-thirds of New Zealand`s electricity generation is on the South Island, while two-thirds of the population lives on the North Island. The New Zealand generation system is predominantly hydro-based, utilizing run-of-river systems and water stored in natural or man-made lakes. More than 30 hydro generation facilities on the South Island provide around 60 to 70 percent of New Zealand`s electricity.
Government officials, industry leaders and utility company representatives discussed several viewpoints concerning the New Zealand reform experience and the possibility of New Zealand companies entering the U.S. market.
New Zealand electricity reform
Generation and transmission in New Zealand have almost always been government-owned, with distribution controlled by a large number of local authorities. Electricity reform started in 1987, when the New Zealand government transformed the government-run generation company into a state-owned enterprise (SOE).
The reform is causing a wave of concern over who owns the electric industry. Historically, as other New Zealand industries deregulated, SOEs eventually were sold to private enterprises. “The fear is that all these assets that we own as New Zealanders will be sold into the hands of foreigners,” said Alan Seay, Meridian Energy`s principal of communications & external relations.
The government`s approach to restructuring was unique in that it took a hands-off approach. Strict government economic control during the Sir Robert Muldoon regime in the late 70s and early 80s left a lasting impression on New Zealanders. When the Labor party took control in the 80s, all government controls were lifted. Even though the government tried to take a hands-off approach, officials were concerned about monopoly ownership of the distribution and retail sides of the industry, which led to an order to separate those sides last April. This was a politically charged issue but the government believed it had to take control. “You can`t just let natural monopolies determine their own situation,” said Michael Lear, New Zealand Ministry of Commerce deputy secretary. “They will take advantage of their monopoly powers and government does have a role in ensuring they can`t do that.”
Electricity reform in New Zealand is taking too long for many in the industry. “The New Zealand experience represents a significant disruption to the whole industry,” said Ron Davey, director for Mahanga Holdings Ltd., a transmission and distribution equipment supplier. Combine this with Y2K concerns and the New Zealand market is flat. For those companies that can hold out, business in 2000 and 2001 will be substantial according to Phil Holliday, managing director for Holliday Group Ltd., a service partner in the utilities industry with remote terminal unit (RTU) provider QTech.
Views on entering the U.S. market
New Zealand companies have always had good trade relations with Australia and the United Kingdom. With the current U.S. deregulation efforts, they are now looking at the U.S. market. Some New Zealand companies are already active in the United States: Abbey Systems, Peace Computers, CIC Systems, Sanderson Computers, PB Power and others.
According to Lester Abbey, managing director for Abbey Systems, a remote monitoring and control company, for New Zealand companies to be successful in the U.S. market they have to find a niche. “We found a niche for the small rural U.S. market,” said Abbey. “Many U.S. companies don`t want to serve this market, while it matches up with us quite well.”
The U.S. electric cooperatives market mirrors the New Zealand market, according to Davey. “Co-ops are a good match for New Zealand companies because they represent a small customer base, similar to utilities in New Zealand,” said Davey.
While some New Zealand companies are identifying their niche U.S. markets, others are concerned that a country the size of the United States is too overwhelming. “The United States is so big, you just can`t hit it all,” said Holliday. The New Zealand culture also influences why companies don`t enter the U.S. market. “A lot of people in New Zealand are skeptical about entering the U.S. market. All of the people who grew up here have a commonwealth viewpoint of doing business. The size and diversity of the U.S. market is a detriment,” said Brian Allen, director for Countercorp Business Systems, a software and services company.
Some New Zealand companies have indicated just getting a small piece of the action would be a major boost in business. “We are very happy with the crumbs that fall off the table,” said Abbey. “One to two percent of the U.S. market is substantial to New Zealand companies.”
The U.S. electric industry can learn from the New Zealand experience. According to Abbey, New Zealand is a very technologically aware country and its technology equals that in the United States. New Zealand companies must perform beyond market expectations for them to compete against much larger international conglomerates according to the New Zealand Trade Development Board. This drive to be better, along with the fact that there are less corporate layers to work through in a New Zealand company (a medium-size New Zealand company has approximately 20 employees), has led New Zealand companies to be more responsive and innovative.
New Zealand`s modern society and laid-back attitude resulted in a growing and prosperous country looking to expand and grow into new deregulated markets The ability to create a quality product combined with the pride New Zealanders have in their country and electrical industry creates a climate of success.
Auckland, the largest New Zealand city with 1.2 million residents, experienced a major blackout a little more than a year ago in its central business district (CBD). With temporary overhead lines feeding the CBD, Auckland is experiencing new growth even though some say there is still a power risk.