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Electricity Lines Businesses: thresholds set

Electricity Lines Businesses: Commission sets thresholds

The Commerce Commission has set thresholds for the declaration of control in relation to electricity lines businesses, and also requirements of lines businesses to make public certain information relating to their performance against the thresholds.

Commission Chair John Belgrave said this is an important milestone in the regulatory regime for electricity lines businesses, which the Commission is required to develop under Part 4A of the Commerce Act.

“The thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if required, control by the Commission,” added Mr Belgrave.

The Commission announced on 31 March 2003, its decision to adopt two thresholds – a price path threshold and quality threshold. Since then, the Commission, with input from interested parties, has been developing the final Gazette notice to set the thresholds. The Gazette notice was published on Friday 6 June.

The purpose of the price path threshold is to provide incentives for lines businesses to reduce their prices in real terms (and therefore to improve efficiency), to be limited in their ability to extract excessive profits, and to share the benefits of efficiency gains with consumers.

The purpose of the quality threshold is to provide incentives for lines businesses to not allow their reliability to fall as a means of reducing costs in response to the price path threshold, and to incentivise them to provide services at a quality demanded by consumers. “The thresholds provide incentives for electricity lines businesses to maintain the quality of their services while reducing prices in real term,” said Mr Belgrave.

The Commission’s decisions related to the thresholds and information requirements are set out in a Decision Paper Regulation of Electricity Lines Businesses, Targeted Control Regime, Threshold Decisions, also published on 6 June 2003. This paper was originally released on 2 May 2003 and has been re-released, as previously announced by the Commission, updated to reflect the technical changes made as a result of the Gazette notice drafting process. The Decision Paper also provides information on: the process the Commission will follow for resetting the price path threshold to apply from 1 April 2004; and the process the Commission will follow for developing the detail of the investigation and control parts of the regulatory regime, including its views on WACC and asset valuation. The development of this detail is necessary for the implementation of those parts of the regime (if required), as well as to give guidance to electricity lines businesses on what consequences might follow a breach of the thresholds.

Further detail regarding the thresholds for the declaration of control in relation to electricity lines businesses can be found in a notice, published in the New Zealand Gazette on 6 June 2003 (the Commerce Act (Electricity Lines Thresholds) Notice 2003) and a decision paper (Regulation of Electricity Lines Businesses, Targeted Control Regime, Threshold Decisions), published by the Commission on 6 June 2003, http:// http://www.comcom.govt.nz, refer Electricity Lines Businesses.

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

Background Part 4A of the Commerce Act 1986, which commenced on 8 August 2001, establishes the regulatory regime for large electricity lines business. The Commission is required, inter alia, to set thresholds and assess the performance of electricity lines businesses against those thresholds. If one or more of the thresholds are breached by an electricity lines business, the Commission could further investigate the business and, if required, control their prices, revenue or quality. In effect, the thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if required, control by the Commission.

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 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. The Commission sought submissions on its draft decisions; held a conference and invited cross-submissions. On 2 May 2003 the Commission released a Decision Paper and a draft Gazette notice and invited comments on the notice. Having taken these comments into account, the Commission altered and re-released the draft Gazette notice for further comment on 28 May 2003.

The purpose of the regime, as set out in s57E of Part 4A, is to promote the efficient operation of markets directly related to electricity distribution and transmission services through targeted control for the long-term benefit of consumers by ensuring that suppliers– are limited in their ability to extract excessive profits; and face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and share the benefits of efficiency gains with consumers, including through lower prices.

Relevant media releases

Commission media releases, as well as relevant publications, can be viewed on its web site http:// http://www.comcom.govt.nz. Relevant media releases include:

2003-03/167 – Update: Regulation of electricity lines businesses (30 May 2003)

2003-03/150 – Electricity Lines Businesses: Commission releases thresholds decision paper (2 May 2003)

2003-03/132 – Electricity Lines Businesses: Commission decides on thresholds
(31 March 2003)

2003/118 – Electricity Lines Businesses: Commission confirms conference details
(27 February 2003)

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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