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CC releases decision on self-governance rulebook

Commerce Commission releases full decision on self-governance rulebook for electricity industry

The Commerce Commission today released its written reasons to authorise a set of arrangements in the form of a rulebook for the self-governance of the electricity sector, as announced last month.

If adopted, the rulebook would supersede existing arrangements for the wholesale market, grid security, metering and reconciliation, and would also incorporate arrangements for agreeing transmission prices, services and investment levels.

In its authorisation, the Commission assessed the proposed set of arrangements against the most likely alternative, which included a greater direct government involvement in the governance arrangements.

The Commission determined that the proposed set of arrangements would be likely to give rise to public benefits from higher quality decision making, lower lobbying costs, and the avoidance of over-investment in transmission, but that detriments would arise from the potential for pro-competitive rules being blocked or delayed, and from the risk of under-investment in transmission. The Commission also concluded that one element, pricing to non-members, involved price-fixing and that the arrangements as a whole lessened competition in electricity related markets.

The Commission considered that the risk of these detriments was significantly lessened by the imposition of certain conditions on the decision, and by limiting the period of authorisation.

Commission Chair John Belgrave said "the Commission is satisfied that with the conditions and limited period of authorisation, the benefits would outweigh the detriments."

Conditions of the authorisation The Commission has applied four conditions to its authorisation. These are: * changes to the governance arrangements to ensure that pro-competitive and public benefit enhancing rule changes are not delayed unduly in working groups; * changes to the governance arrangements to allow the EGB discretion to over-ride an industry vote opposing a pro-competitive and public benefit enhancing rule change; * the completion of the drafting of rules dealing with consumer issues; and * a review of the efficacy of the part of the rulebook dealing with transmission services after two years. The authorisation will expire four years from the date of the implementation of the rulebook, or on 31 March 2007, whichever is the earlier.

The Commission's full decision will shortly be available on its website at http://www.comcom.govt.nz/adjudication/egbl_s58.cfm

Background The Commission assessed the net present value of the benefits to be in the order of $38 million to $74 million and the detriments, in the absence of the conditions, to be in the order of $46 million to $92 million.

The Electricity Governance Board Limited (EGB) initially applied for the authorisation, under section 58 of the Commerce Act, in December 2001, and subsequently submitted a revised application in February 2002.

The proposed rulebook was developed by the industry following the release of the Government Policy Statement (GPS) in December 2000. The GPS sets out the Government's expectations for industry action and its views on governance matters.

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