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Electricity Lines Businesses Threshold Assessments


Electricity Lines Businesses: Update on the Commission's Threshold Assessments

The Commerce Commission has reviewed self assessments provided by 29 electricity lines businesses, and found two businesses in breach of the price path threshold. Twelve lines businesses have been found to comply with the thresholds, and the Commission has gone back to the remaining 15 lines businesses requesting further information to complete its assessments.

The two businesses found in breach are Nelson Electricity and Top Energy. Commission Chair Paula Rebstock said the Commission considers these breaches are attributable to timing differences between movements in their transmission costs and movements in their average prices.

"The Commission has determined not to make a declaration of control in respect of the services supplied by those lines businesses."

The 12 lines businesses cleared by the Commission are Alpine Energy, Aurora Energy, Counties Power, Eastland Network, Electricity Ashburton, Horizon Energy Distribution, Network Tasman, Northpower, Orion, Scanpower, Vector, and WEL Networks.

The price path threshold, which was set by the Commission in June, applies to 29 lines businesses, including Transpower. In essence, a lines business is deemed to have breached this threshold, at the first assessment, if its average price net of certain costs is found to have increased over the period from August 2001 to September 2003. For distribution businesses, the costs that are netted out include the transmission charges they pay to Transpower.

Once it has completed its assessments of all 29 lines businesses, the Commission will issue a report explaining how the assessments were undertaken, and summarising their results.

The Commission will give reasons in that report for its decisions in respect of lines businesses that are found to have breached the price path threshold, and for which the Commission has determined not to declare control.

Background

Part 4A of the Commerce Act 1986, which commenced on 8 August 2001, establishes the regulatory regime for large electricity lines businesses (distribution businesses and Transpower). The Commission is required, inter alia, to set thresholds and assess the performance of electricity lines businesses against those thresholds. If one or more of the thresholds are breached by an electricity lines business, the Commission could further examine the business through a post-breach inquiry and, if required, control their prices, revenue or quality. In effect, the thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further examination and, if required, control by the Commission.

On 6 June 2003, following extensive industry consultation, the Commission set the thresholds and published a notice in the New Zealand Gazette. As part of its decisions on the June 2003 thresholds, the Commission announced it would reset the thresholds to apply from 1 April 2004 for distribution businesses and from 1 July 2004 for Transpower. The Commission has now made decisions on the thresholds to apply from 2004, and expects to publish them in the Gazette in March 2004.

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-

(a) are limited in their ability to extract excessive profits; and

(b) face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and

(c) share the benefits of efficiency gains with consumers, including through lower prices.

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