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Draft price-quality paths for electricity distributors

Commerce Commission releases draft price-quality paths for electricity distributors

The Commerce Commission is seeking submissions on its proposed average price limits and quality targets for 16 electricity distributors.

The draft default price-quality paths cover the period 2015-2020, and will take effect from 1 April 2015.
Commerce Commission Deputy Chair Sue Begg said, “the draft price-quality paths balance the need to ensure that these businesses have incentives to invest, and to improve the efficiency and quality of their services, while being constrained from achieving excessive profits.”

“Our approach to setting these price-quality paths is based on methodologies that we have used before. The pricing model has been available for some time. This should mean that businesses, investors, and consumers can better predict the kinds of price changes that will result from our price resets,” said Ms Begg.

This proposed price path would see overall average prices decreasing by a small margin from 2015. “One of the reasons for the overall decrease in prices is that the benefits of efficiency gains by suppliers are being passed through to consumers,” said Ms Begg. “This is an important benefit of the price-reset process.”

Adjustments for individual distributors vary by region. Some regions will see price increases primarily because those distributors under-recovered in previous years and are still catching up. The two proposed largest increases are 13.5% for Alpine Energy and 8.4% for Top Energy. The Commission has proposed an on-going cap on the increases for these distributors over the five years to limit the size of price increases for consumers in those regions.

The Commission is also proposing new incentive schemes that will provide long-term benefits for consumers by rewarding and penalising businesses based on their performance. This includes incentives schemes for quality and energy efficiency.

“We have been working closely with the sector in developing the incentives to make sure that they work well. We would like to acknowledge the work of the ENA technical groups in this process,“ said Ms Begg.

The draft decision does not apply to Orion New Zealand Limited, which applied for and was granted a customised price-quality path in recognition of its change in circumstances after the Canterbury earthquakes. Transpower is subject to a separate individual price-quality path.

Any distributor who believes the default price-quality path does not suit their current circumstances can apply for a customised price-quality path.

The draft decision is now open for consultation, and will be subject to change following submissions and any further information provided by distributors. Interested parties should email their submissions to regulation.branch@comcom.govt.nzby 15 August 2014.

Following consultation, the Commission will make a final decision on the reset of the default price-quality path by 28 November 2014. The new default price-quality paths will apply to distributors from 1 April 2015.

The draft decision and a background fact sheet can be found at http://www.comcom.govt.nz/regulated-industries/electricity/electricity-default-price-quality-path/default-price-quality-path-from-2015/.

A map showing changes by distributor can be found at http://www.comcom.govt.nz/electricity-distributor-map/

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