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Inquiry into Electricity Line Business Pricing

Commission Announces Inquiry into Electricity Line Business Pricing
Media Release 2000/98

‘The Commerce Commission is initiating an inquiry into pricing by electricity line businesses’, announced Commission Chair, John Belgrave.


The Commission’s announcement follows that of the Government in which it outlined a comprehensive policy package for the electricity industry, which contains additional functions for the Commission, including the operation of a price control regime for electricity line services.


The inquiry, which will be carried out pursuant to s 54(3) of the Commerce Act, will be conducted with a view to putting the Commission in a position where it can report to the Minister of Energy on price control for electricity line services. Information obtained in the course of the inquiry will also provide a basis for the Commission to exercise its future price control function.


The inquiry will examine pricing issues in respect of both local electricity line businesses and the State-owned Transpower, which runs the national transmission grid. Attached is a preliminary issues paper outlining the steps the Commission proposes to take and the procedures it proposes to adopt in conducting its inquiry. Submissions are sought on this paper.


The Government has also announced that it will be transferring responsibility for the information disclosure regime that applies to electricity line businesses from the Ministry of Economic Development to the Commission. In addition the Commission will be responsible for reviewing the methodology for valuing line business assets, for mandating any changes as appropriate, and for undertaking a re-calculation of asset values. The Commission will take up these responsibilities when the necessary legislative changes have been effected.

Price Control: Electricity Line Businesses Preliminary Issues and Process
Media Release 2000/98-A

INTRODUCTION

Pursuant to s 54(3) of the Commerce Act 1986 (the Act), the Commission is initiating an inquiry into the pricing of electricity line business services. The inquiry will be conducted with a view to putting the Commission in a position where it can report to the Minister of Energy on price control of the services provided by electricity line businesses.

The services involved are all the ‘line function services’ provided by ‘line owners’ under the terms of the Electricity Act 1992 that are currently subject to disclosure requirements pursuant to the Electricity (Information Disclosure) Regulations 1999. Essentially these are the line function services provided by local electricity distributors and those provided by Transpower, the owner of the national transmission grid. Line function services do not include electricity retailing.

This paper outlines the issues that the Commission intends investigating and its proposed approach, and seeks submissions on these.


ISSUES THAT THE COMMISSION PROPOSES TO INVESTIGATE

The Commission proposes to investigate:


the degree to which electricity line function services are supplied in a market (or markets) where competition is limited; and

whether it is necessary or desirable for the prices of those services to be controlled in the interests of users or consumers, or of the suppliers of the services.

In conducting its investigation the Commission proposes to have regard to:


the balance of benefits between owners and consumers, economic efficiency,

and the administrative costs of imposing price control;

the nature of the services which could be subject to price control, including the quality of those services, and how that nature may be impacted by price control;

whether particular line businesses should have their services targeted for price control and, if so, how such targeting might be effected;

what form price control should take, if it were introduced;

when price control should end, and how its application should be reviewed, if it were introduced; and

the recently announced Government decisions on the recommendations of the Electricity Industry Inquiry panel.


PROPOSED APPROACH

The Commission proposes the following initial steps:


to receive submissions on the Commission’s identification of preliminary issues and its proposed process (contents of this paper) by 31 October 2000

to initiate preparation of two issues papers that will be dealt with in tandem:

a paper on high level price control issues (eg issues concerning the relative emphasis to be placed on distributional and efficiency effects, and the merits of alternative approaches to price control (such as CPI-X and sliding scale regulation) and to targeting – as opposed to issues concerning the detailed design features of particular approaches)

a paper on asset valuation methodology issues

by 30 November 2000


(3) to release the two issues papers by 31 March 2001

(4) to receive submissions on the issues papers by 15 May 2001


(5) to prepare reports for consideration by the Commission in relation to each of the issues papers that identify decisions to be made and issues that require further work, and recommend the future course of action by 30 June 2001

(6) to undertake further investigations, and call for further submissions, and hold conferences as appropriate (it is proposed that, prior to key decisions being made by the Commission, conferences be held adopting a similar format to that used for authorisations considered under Part V of the Commerce Act)


to consider what further action to take; depending on the legislation in place, such action may include making specific recommendations to the Minister as to price control for certain electricity line businesses.

The steps outlined above, and the timing (particularly in relation to the later dates), are indicative. The Commission may amend the approach from that proposed in the light of submissions and new information, and in response to any new legislation concerning electricity sector regulation.


SUBMISSIONS

The Commission is now seeking submissions in respect of:


the scope and nature of the issues arising with price control of line services, and the issues that the Commission proposes to investigate; and

the approach which the Commission is proposing to adopt in investigating the issues.


Public Availability of Submissions

The Commission’s approach will in general be to make all submissions publicly available. The Commission does not expect confidential material to be included, but if a correspondent considers specific material to be of a confidential nature then they should in their submission indicate which material, and the grounds under the Official Information Act 1982 for such material to be withheld. Correspondents should note, however, that any decision to release or withhold rests with the Commission, and any such decision by the Commission to withhold is subject to appeal to the Ombudsman.


Mailing Details

Submissions should be sent by e-mail to electricity@comcom.govt.nz . If it is not possible to e-mail submissions, then they may be sent to:

Price Control: Electricity Line Businesses

Commerce Commission

PO Box 2351

WELLINGTON

Fax: (04) 498 0092

All submissions should be supplied to the Commission no later than Friday 31 October 2000.

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