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Control of Unison Networks published

9 September 2005

Intention to declare control of Unison Networks published

The Commerce Commission today published its intention to make a declaration of control in respect of the electricity distribution services supplied by Unison Networks Limited. This follows an inquiry into Unison’s electricity distribution services after the company breached regulatory thresholds set under Part 4A of the Commerce Act.

This is the first time the Commission has published an intention to declare control of an electricity distribution business since it was given powers to do so in August 2001.

Unison supplies consumers in the Hawke’s Bay, Taupo and Rotorua regions. The company is 100% owned by the Hawke’s Bay Power Consumers’ Trust, which acts on behalf of the consumers connected to Unison’s network in Hawke’s Bay.

Commission Chair Paula Rebstock said that the Commission’s preliminary findings from the inquiry indicated there would be long-term benefits to Unison’s consumers from control being imposed.

The Commission assessed Unison’s return on investment for the year ended March 2006 to be as high as 12.23%. This compares to the Commission’s estimate of the required rate of return of 7.35%. The Commission estimated the rates of return by region were Taupo 17.36%, Rotorua 14.36% and Hawke’s Bay 8.25%.

“The profits earned from Unison’s Rotorua and Taupo consumers, who are not beneficiaries of the Trust, are significantly higher than those taken from consumers in Hawke’s Bay, who own the Trust.”

“While Rotorua and Taupo consumers could potentially receive the most benefits from price control, Hawke’s Bay consumers would likely also benefit from control being declared,” added Ms Rebstock.

The Commission’s preliminary estimates suggest that, on average, prices for Hawke’s Bay consumers could be as much as $77 a year lower under control than they would be without control. The corresponding price reductions for Rotorua and Taupo consumers would be as much as $193 and $321 a year, respectively.

The Commission must have regard to the views of interested parties before it can make a declaration of control and is inviting submissions on the issue and holding a consultation conference in early November.

The Commission’s notice of intention to declare control has been published in the New Zealand Gazette, and the paper setting out its reasons for the intention is available from the Commission’s website: www.comcom.govt.nz. Follow the link from the press release on the homepage.
Background The Commission has set thresholds for distribution business performance under Part 4A of the Commerce Act. The thresholds are a screening mechanism for the Commission to identify distribution businesses whose performance may warrant further examination, and if necessary, control of their prices, revenues, or service quality standards.

Unison breached the Commission’s price path threshold as a result of price increases in April 2002 and March 2004. After an initial review, which established that Unison intended to make further significant price increases in future, the Commission initiated a ‘post-breach inquiry’ into Unison’s recent and planned performance.

Part 4A of the Commerce Act 1986, which commenced on 8 August 2001, establishes a targeted control regime for large electricity lines businesses (distribution businesses and Transpower). The Commission is required, among other things, to set thresholds and assess the performance of lines businesses against those thresholds. Following extensive industry consultation, the Commission set two thresholds—a price path threshold and a quality threshold.

The purpose of the targeted control regime, as set out in section 57E of the Commerce Act, 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.

ENDS

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