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Commission’s Draft Electricity Regime A Mixed Bag

24 December 2002

Commerce Commission’s Draft Electricity Regime A Mixed Bag

The Commerce Commission’s pre-Christmas release of a draft decision on electricity line company ‘control thresholds’ is “something of a mixed bag”, says Electricity Networks Association Chairman Warren Moyes. “The Commission has been very sensible in releasing a draft rather than a final decision at this stage, and we welcome the opportunity it has created to talk through some of its ideas before it implements them. Also, its view that future reviews of company valuations should be kicked off from the base valuation formula that it used to audited all companies in February is a realistic one that will avoid a great deal of confusion and expense. However, its suggestion that all line companies’ charges should drop in real terms by 5% a year for the next 5 years is potentially very destabilising.”

Warren Moyes says that the compounded impact of this series of price reductions would be a fall of around 23%, in charges that are already modest. “The average lines company makes about 6-7% profit, and has achieved this by trimming costs not by increasing charges. Lines charges appear to be among the lowest in the world already, despite the problems created by low customer densities and pressures to maintain similar urban and rural line charges. While the Commission says it will be monitoring quality of service as well as price, it will become extremely difficult for companies to continue to provide high service levels while following the Commission’s price reduction path.”

“No-one in the industry, and especially consumers, wants to see the type of asset run-down that ‘reform’ has led to in the rail and other infrastructure sectors. If the Commission goes firm with its overall 23% real price reduction plan then this is the future our electricity supply system could face.”

While electricity lines companies, along with the government-owned national grid company, Transpower, are to have price reductions imposed on them under the draft Commerce Commission programme, the electricity retailers they serve will not be controlled. The Networks Association suspects that the great bulk of any drop in lines charges will be absorbed within retail margins, meaning that consumers will face the prospect of reduced service levels for little or no gain.


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