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Electricity Price Control Inquiry: Next Stage

Media Release

1 February 2001/9

Electricity Price Control Inquiry: Next Stage of Work

The Commerce Commission Chair, John Belgrave, has provided a further update on the Commission's inquiry into price control for electricity line businesses. As foreshadowed, the Commission will be using external contractors to provide specialist input. After a rigorous selection process, in which 12 proposals were received and three short-listed, the Commission has engaged ACIL Consulting in conjunction with Farrier Swier Consulting.

In their work for the Commission they will draw on their wide experience and expertise in matters concerning economic regulation, including extensive background in the energy sector in general, and the electricity sector in particular.

The Commission originally intended to issue discussion papers around March/April this year. The timing is now likely to be May.

All interested parties will be invited to make formal submissions on the discussion papers when they are released. In addition, the Commission is proposing to hold a conference. Interested parties will be invited to attend and present their views.

In the meantime the consultants will, on behalf of the Commission, be conducting less formal consultation processes. First, all interested parties are being invited to provide written submissions on issues concerning price control and asset valuation for electricity line businesses. Attached is a copy of this invitation. The responses will help ensure that the resulting discussion papers are as comprehensive and robust as possible.

Secondly, the consultants propose around March/April to hold discussion sessions on specific issues arising. In addition the consultants will, through the course of their work, be making other enquiries and holding discussions with key stakeholders.

As previously announced the Commission will, throughout its inquiry, maintain close communication with the wider industry and all other interested parties to ensure that all relevant knowledge and information can be drawn on.

"I invite all interested parties to provide their full cooperation with the Commission and its consultants. The Commission will operate its processes in as open and transparent manner as possible", said Mr Belgrave.

Media contact: John Belgrave, Chair Phone: work (04) 498 0963, mobile 021 650 045, home (04) 801 6353

Ken Heaton, General Manager Phone: work (04) 498 0962, home (04) 473 9523

The Commission's media releases can be viewed on its website

1 February 2001


The Commerce Commission ("the Commission") invites your organisation to provide initial input to the inquiry into pricing by electricity line businesses.


Previously the Commission announced (Media Releases 2000/98 and 98A - available on the Commission's website) that in conducting its inquiry it would prepare two Discussion Papers: one on issues concerning price control methodologies for electricity line businesses, and the second on issues associated with asset valuation methodologies for such businesses.

Subsequently the Government introduced the Electricity Industry Bill that includes a range of new Commission powers and responsibilities in relation to line businesses.

A key part of the Bill in relation to price control of line businesses is Part 4A, Subpart 1, s 57B. It states:

"The purpose of this subpart is to promote the efficient operation of the markets for electricity distribution and transmission services through price control for the long term benefit of consumers by ensuring that suppliers -

(a) are limited in their ability to extract excessive profits;

(b) face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and

(c) share the benefits of efficiency gains with consumers,-

in the electricity distribution and transmission markets."

The Commission intends to have regard to these factors in conducting the initial stages of its inquiry, but may modify its approach if the final form of this part of the Bill changes. It would be helpful if parties wishing to make submissions to the Commission on the questions of price control and asset valuation have close regard to the Government's purpose and proposals.

Stakeholder Input

The Discussion Papers will be the formal basis on which the Commission will seek input from interested parties later this year. However, the Commission believes that there should be an opportunity for informal input from all interested parties at the outset of this work. This will help ensure that the Commission is aware of all relevant views and information, so that these are taken into account in the preparation of the Discussion Papers.

In order to facilitate early progress on the Commission's inquiry, the Commission has decided to engage external contractors. ACIL Consulting in conjunction with Farrier Swier Consulting ("the Consultants") has been engaged to undertake this task. It will assist in preparing material for the Discussion Papers, and in the course of doing this it will be seeking the views of interested parties.

There will be provision for input from interested parties at two stages:

Stage Actions Time Information Gathering Seek written input on issues and options as part of the information gathering stage Deadline: 21 February Informal consultation on specific issues Arrange working sessions or workshops. Details to be determined once the issues have been identified and analysis is underway. March - April (Indicative)

The Attachment gives more details on the written input now being sought by the Consultants in the course of their initial Information Gathering stage.

In addition, from early February, the Consultants will make other contacts with key interested parties, and make enquiries and hold meetings as they see fit.


If you have any questions regarding the Commission's inquiry, or the work being conducted by the Consultants on behalf of the Commission, please contact one of the people listed below.

Individual Nature of Query Contact Details Andrew Smith Chief Advisor Commerce Commission Overall conduct of Commission's inquiry E-mail: Tel: 04 498 0961 Fax: 04 498 0092 Jeff Rae Project Leader Consultants Approach to, and scope of, information gathering for preparation of material for the Discussion Papers E-mail: Tel: 00 613 9600 3144 Fax: 00 613 9600 3155 Mob: 00 61 404 822 321 Paul Webber Project Analyst Consultants Detailed questions relevant for the preparation of material for the Discussion Papers E-mail: Tel: 09 377 5235 Fax: 09 377 5235 Mob: 021 996 394


Scope and Form of Initial Written Informal Submissions

Input should ideally be in the form of short papers (no more than 6 to 10 pages) accompanied, where appropriate, by attachments such as reports or papers. The papers should be clearly in the context of the Commission's inquiry and take into account the current Electricity Industry Bill in respect of the new powers and responsibilities that are proposed to be provided to the Commission.

As a guide, the papers might usefully address the following points:

1. Issues and Problems

* What are the key issues that need to be taken into account?

* What specific problems might the price control and asset valuation arrangements be aimed at addressing?

2. Options for price control and asset valuation

* What are the viable options for price control and asset valuation, which are consistent with the objectives set out in the Electricity Industry Bill?

* What options are viewed as inappropriate, and why?

(Include relevant material and reports that address these options and issues.)

3. Particular comments on the applicability of options in the New Zealand context.

Comments are also invited on any other issue or perspective that you consider is material or significant in the context of the Commerce Commission's role and objectives, again bearing in mind the current Electricity Industry Bill.


Papers should be submitted to by Wednesday 21 February 2001. If you are unable to provide your submission in electronic form, it may be mailed to:

Electricity Pricing Inquiry Commerce Commission Landcorp House 101 Lambton Quay PO Box 2351 WELLINGTON

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