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Electricity Lines Businesses

Electricity Lines Businesses: Commission confirms conference details

The Commerce Commission will hold a five-day conference on its draft decisions on the regulatory regime for electricity lines businesses from 10-14 March 2003.

The conference is a further opportunity for interested parties to present their views on what thresholds the Commission should use to determine whether individual electricity lines businesses be investigated and, if necessary, controlled. Whereas previous conferences (July and November 2002) focussed on possible forms of thresholds and asset valuation issues, the upcoming conference will focus on the Commission’s proposed thresholds and their implementation in practice.

The Commission released its draft thresholds decisions on 23 December 2002 (high-level draft decisions) and 31 January 2003 (draft decisions on implementation detail).

In making submissions at the conference, the Commission encourages interested parties to consider:

the Commission’s process is intended to minimise any uncertainty that may exist while developing the regulatory regime for electricity lines businesses. The Commission has a statutory duty to operationalise the regime as set down in the legislation (Part 4A of the Commerce Act). Submissions should focus on the means to give best effect to the legislation;


the thresholds are a screening mechanism to identify electricity lines businesses whose performance may warrant closer scrutiny. Thresholds are not an instrument of control. The legislation contemplates an assessment of whether there may be reasons for electricity lines businesses performing outside the threshold levels, which would not lead to control; and

the Commission must give consideration to each element of the purpose statement for the regime and, therefore, submitters should also consider how best to fulfil each element. The elements are ensuring lines businesses (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, including through lower prices.

The conference will be held at Level 5, CSI House, 166 Featherston Street, Wellington. A schedule of parties presenting at the conference will be publicly released in advance of the conference.

Submissions on the Commission’s draft decisions, which close on 28 February 2003, will be available on the Commission’s website (www.comcom.govt.nz).

As for previous threshold and related conferences, the Commission will consider further written submissions following the conference provided they are received by 9.00am Friday 21 March 2003. Any such submissions must be confined to issues or matters raised for the first time by other parties at the conference (i.e. issues that would ordinarily be addressed by way of an oral reply at such a conference). These cross-submissions will also be placed on the Commission’s website.

In its draft decisions of 31 January 2003, the Commission proposed, as part of the price path threshold, three different X factors (1, 3 and 5%) applicable to different groups of electricity lines businesses. The Commission asked interested parties to make submissions on how the grouping can best be done.

Should such an approach be adopted, the Commission would consult further on a proposed methodology for grouping electricity lines businesses into the different ‘X’ categories.
As previously indicated, the Commission intends to make final high-level decisions on the types of thresholds by 31 March 2003, so the thresholds can apply with effect from
1 April 2003 to 31 March 2008 (1 July to 30 June in the case of Transpower). The Commission intends to seek views on the draft text of the Gazette notice to ensure it gives best effect to the Commission’s decisions. This will be limited to technical drafting points and will not be a further opportunity to debate the thresholds.

Background Targeted control regime

Part 4A, which commenced on 8 August 2001, of the Commerce Act 1986, establishes the regulatory regime for large electricity lines business. The Commission released a Discussion Paper on 21 March 2002 and held a public conference for interested parties to make their views known in mid-July 2002. The Commission is required, inter alia, to set thresholds and assess the performance of electricity lines businesses against those thresholds. Businesses that breach the thresholds could 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 released draft decisions on the high-level design of the thresholds on 23 December 2002 and draft decisions on implementation detail on 31 January 2003.

Review of asset valuation methodologies

Part 4A of the Commerce Act requires the Commission to carry out a review of asset valuation methodologies (the review) for electricity lines businesses as soon as practicable. The Commission released an Issues Paper on 14 March 2002, a Discussion Paper on 1 October 2002, and held a public conference (25-28 November 2002) for interested parties to make their views known. The Commission’s paper released on 23 December 2002 set out its draft decisions on the outcomes of the review. Both draft decisions papers (high-level design and implementation detail), as well as a report on WACC prepared by Dr Martin Lally, are available from: www.comcom.govt.nz (select Electricity Lines Businesses).

Relevant media releases

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

2003/104 – Electricity Lines Businesses: Commission releases draft decisions on implementation detail (31 January 2003)

2002/96 – Electricity Lines Businesses: Commission releases first of two draft decision papers (23 December 2002)

2002/45 – Update: Regulation of electricity lines businesses (2 October 2002)

2002/31 – Commerce Commission approves the asset valuations of 28 electricity lines companies (4 April 2002)

2002/25 – Commerce Commission releases discussion paper on control of electricity lines businesses (21 March 2002)

2002/22 – Commission to review electricity lines valuation methodologies: Issues Paper attached (14 March 2002)

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