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Transpower seeks settlement, no 19% price rise

Media Release

Issued 31 March 2006/ 115

Transpower seeks settlement with Commission, customers won’t face 19% price rise on 1 April

Electricity transmission business Transpower has told the Commerce Commission its customers will not pay the planned 19% price rise on 1 April, while Transpower seeks to negotiate an administrative settlement with the Commission.

The 19% price rise will go ahead, but customers will be credited the same amount, effectively cancelling the increase.

The move is an interim measure that will see the Commerce Commission delay its decision on whether to place the company’s electricity transmission services under control. The delay gives Transpower time to reach an administrative settlement with the Commission.

An administrative settlement is an alternative to the Commission declaring control after a company has breached price or quality thresholds set under the Commerce Act. An administrative settlement would be less intrusive and less costly than imposing control and is an alternative available to the Commerce Commission under the Commerce Act. Transpower's revenue requirements and the level of future prices would be agreed to under such a settlement.

Commerce Commission Chair Paula Rebstock said the undertaking was a sign of good faith from Transpower.

“This development shows that the regulatory regime for electricity is flexible enough to allow workable solutions to be developed without necessarily moving to control,” Ms Rebstock said.

“The Commission believes there is a way forward that will allow Transpower to make necessary investments in the national grid, while ensuring that its activities do not breach the Commerce Act.”

Transpower is expected to provide the Commission with a settlement offer in May. If the Commission can reach a preliminary agreement with Transpower on that settlement offer, the Commission will consult on the terms of that settlement with interested parties, including consumers.

If an agreement can not be reached, the Commission will proceed with deciding whether to declare control of Transpower’s transmission services. Control can be declared if it is found that Transpower’s threshold breaches were not justified, and if imposing control would be in the best long term interest of consumers.

Background

The regime: The Commerce Commission administers regulation of 28 electricity distribution companies and Transpower 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.
The companies are regulated by having thresholds set for them that govern the quality of services they deliver and/or how much they can raise their prices by each year. The price thresholds are linked to the Consumer Price Index rate of inflation.
Since the targeted thresholds regime was implemented in 2001, the Commission has twice published its intention to declare control, of Unison Networks’ electricity distribution services in September 2005 and of Transpower’s transmission services in December 2005. In both instances the Commission is now in the process of considering administrative settlements that, if agreed, would remove the need for control to be imposed.
Control: If companies breach price or quality thresholds set for them, the Commission can consider imposing control on their electricity 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 its management and Board of Directors as normal. Control is not intended to compensate consumers for any past overcharging but to put in place constraints on the controlled business’s future performance.
Administrative settlement: As an alternative to control being imposed, the company can reach an administrative settlement with the Commission. This usually involves the Commission and the company agreeing to pricing levels and quality measures for a period of up to five years. The result is that prices and quality are maintained at levels the Commission considers appropriate for the long term interests of consumers, without the need to impose control, which can be intrusive and costly.

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

ENDS

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