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Discussion Paper On Control Of Electricity Lines

Issued 21 March 2002/025

Commerce Commission releases discussion paper on
control of electricity lines businesses


Encouraging efficient operation of markets for the long term benefit of consumers is the approach taken by the Commerce Commission in the release of its discussion paper on control of large electricity lines businesses. The paper, released today, describes the Commission¡¦s proposals for its new responsibilities under the Commerce Act (the Act) to control the 30 large electricity lines businesses, including Transpower.

The Commission invites interested parties, including consumers and industry participants, to make written submissions on the proposals in the discussion paper.

Chair, John Belgrave, said the Commission¡¦s overall approach was to propose a regime consistent with the purpose of the Act through targeted control for the long-term benefit of consumers.

¡§The regime seeks to ensure that businesses focus on providing quality services at prices that reflect efficient and responsive business practices,¡¨ said Mr Belgrave.

In developing the proposed regime, having regard to consumer interests, the Commission has also recognised the importance of ensuring lines businesses have sufficient incentives to make critical, new and innovative investments within the context of ongoing viability.

As part of the overall regime, the Commission is required to publish performance thresholds. The proposed thresholds will act as a screening mechanism. If a large electricity lines business breaches a threshold, the Commission can further investigate the performance of that business to determine whether it is necessary to place that business under control.

¡§The use of thresholds, as required by the legislation, provides an opportunity for lines businesses to assess and manage their own performance consistent with the objectives of the legislation,¡¨ said Mr Belgrave.

The thresholds proposed by the Commission are based on the objectives of the legislation:

ć an efficiency threshold, which would allow the Commission to determine whether businesses materially improve their efficiency over time;
ć a profit threshold, which would allow the Commission to determine whether businesses have made excessive profits;
ć a sharing threshold, which would allow the Commission to determine whether businesses have shared the benefits of efficiency gains with consumers over time; and
ƒá a quality threshold, which would allow the Commission to determine whether businesses had provided goods or services at a quality that reflects consumers¡¦ preferences.

The Commission could choose to apply all four thresholds, or a selection. The Commission is also open to considering other possible thresholds suggested by interested parties.

¡§In choosing which thresholds to adopt, it is important the thresholds create the best possible incentives for businesses to act in a manner consistent with the purpose of the control sections of the Act,¡¨ said Mr Belgrave.

After considering written submissions on the discussion paper, the Commission will hold a public conference in Wellington. The conference will allow interested parties to make oral presentations to the Commission and the Commission to ask questions. The conference is scheduled for July. Further details of the conference will be advised at a later date.

The discussion paper does not address the Commission¡¦s review of asset revaluation methodologies, which the Commission is undertaking separately (refer Media Release 2002-022 14 March Commission to review electricity lines valuation methodologies).

Electronic and hard copies of the discussion paper (approximately 100 pages) are available by e-mailing electricity@comcom.govt.nz or by writing to the Commission¡¦s Wellington office. The paper can also be downloaded from the Commission¡¦s website, www.comcom.govt.nz.


Submission details

The closing date for written submissions is 17 May 2002.

The Commission would appreciate receiving 20 copies of written submissions plus an electronic version to be published on the Commission¡¦s website. Electronic versions should be emailed to electricity@comcom.govt.nz. Hard copies (20) of the submission should be posted to:
Submission on Electricity Lines Regulation Discussion Paper
Commerce Commission
PO Box 2351
Wellington

The Commission¡¦s timetable is:
Steps Date
Written submissions close 17 May 2002
Publication of submissions on the Commission¡¦s website 24 May 2002
Public conference to enable interested parties to appear before the Commission July 2002 (details to be advised)
Gazetting of the thresholds 1 October 2002 (proposed)
First threshold assessments commence 1 October 2003 (proposed)

Background

Part 4A of the Act, which commenced on 8 August 2001, establishes the regulatory regime for large electricity lines business by providing the Commission with the regulatory power to declare control over their goods or services if those goods or services are supplied in markets directly related to electricity distribution and transmission services. Part 4A provides for targeted control.

To assist with targeted control, the Commission is required to set thresholds (quantitative or qualitative) and assess the performance of lines businesses against those thresholds. Those businesses that breach the thresholds could then be investigated by the Commission to determine whether they should be placed under control. The Commission can control any component of prices, revenues or quality standards. The Commission may use approaches consistent with the purpose of Part 4A, including the use of formulae such as CPI ¡V X.

Media contact: John Belgrave, Chair
Phone work (04) 471 0180,
Communications Manager Jackie Maitland
Phone work (04) 498 0920,

Commission media releases can be viewed on its web site www.comcom.govt.nz

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