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Unison to reverse electricity price rises

Media Release

Issued 17 March 2006/108


Unison to reverse electricity price rises for Rotorua, Taupo

Electricity distribution business Unison Networks has told the Commerce Commission it will reverse its most recent distribution price rises in Taupo and Rotorua from the first of April.

The move is an interim measure that will see the Commerce Commission delay its decision on whether to place the company’s electricity distribution services under control. The delay gives Unison time to prepare an administrative settlement offer for the Commission.

An administrative settlement is an alternative to the Commission declaring control when a company that has breached price or quality thresholds set under the Commerce Act. A settlement is less intrusive and less costly than imposing control.

Unison’s figures suggest that, on average, Taupo consumers will save $46 per year on the cost of electricity distribution, a reduction of about 8.3%, and Rotorua consumers will save $40, a reduction of about 7.1%. Distribution charges make up around a quarter of the average power bill for residential consumers in those regions.

Commerce Commission Chair Paula Rebstock said the undertaking was a gesture of good faith from Unison.

“Unison’s decision to reduce prices underscores the effectiveness of the current regulation of electricity lines businesses. Workable solutions for consumers and businesses can be achieved without the Commission necessarily having to impose control of an electricity lines company.”

“The move will give Unison more time to negotiate with the Commission about an administrative settlement,” Ms Rebstock said.

“In the meantime, consumers in Taupo and Rotorua will not have to wait until the end of that process to see results. They should get the benefit of reduced distribution charges immediately.”

In Unison’s case, a settlement would likely involve the Commission and Unison agreeing on average price levels for the company for a number of years.

Unison is expected to provide the Commission with a settlement offer by the end of May, once the Commission has reviewed the company’s 2006 asset valuation and asset management plan, which Unison is still preparing. If the Commission can reach a preliminary agreement with Unison on that settlement offer, the Commission will consult on the terms of that settlement with interested parties, including consumers, most likely in June.

If an agreement can not be reached, the Commission will proceed with deciding whether to declare control of Unison’s distribution services.

Ms Rebstock added that the Commission expects to see the savings in distribution charges passed on to retail consumers in Taupo and Rotorua. Retailers are the “middle men” between distribution companies like Unison and end consumers.

Background

The Commerce Commission administers regulation of electricity distribution companies under Part 4A of the Commerce Act. The companies are regulated because they face limited competition, and without regulation could charge too much for their services and earn excess profits.

If companies breach price or quality thresholds set for them, the Commission can consider imposing control on their electricity distribution services. If the Commission makes a declaration of control it can then set rules—termed an "authorisation"—governing the prices, revenue and/or quality of those controlled services for up to five years. While the company may face penalties if it does not comply with those rules, the operation of the company will continue to be undertaken by Unison’s management and Board of Directors as normal.

Unison supplies electricity 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.

The Commission published its intention to make a declaration of control of Unison’s electricity distribution services on 9 September 2005. This followed an inquiry after the company breached price and quality thresholds. The Commission’s preliminary findings were that Unison was earning excess profits, with the greatest impact on consumers in Taupo and Rotorua.

The Commission sought the views of interested parties on its intention and held conference sessions in Wellington, Rotorua, Taupo and Napier in November and December 2005.

ENDS


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

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