Lines Businesses thresholds to apply from 04

Electricity Lines Businesses: Commission releases final decisions on the thresholds to apply from 2004

The Commerce Commission today released final decisions relating to the regulation of large electricity lines businesses (distribution businesses and Transpower). This work is part of the Commission’s development of a regulatory regime for lines businesses, as required by Part 4A of the Commerce Act.

The decisions outline the thresholds for the declaration of control that will apply to lines businesses from 2004. The Commission has decided to retain the two existing thresholds: a price path threshold, representing the expected annual change in lines business average prices; and a quality threshold, comprising a reliability criterion and a consumer engagement criterion.

However, for the price path threshold, new parameters will apply.

“In combination, the thresholds will continue to place strong incentives on the industry to improve efficiency and to share the benefits of efficiency gains with consumers over the long term,” said Commission Chair, Paula Rebstock.

“In making its decisions, the Commission has given careful consideration to ensuring that lines businesses will face incentives to invest in their networks and maintain quality of service, including reliability of supply.”

“The Commission has allocated lines businesses to four groups, each of which is assigned a different price path. All businesses will retain incentives to make efficiency improvements each year to avoid breaching the thresholds, and the majority of lines businesses will be expected to reduce their prices in real terms.”

Businesses with below-average productivity, or with relatively high prices, will face a steeper price path than more productive businesses, or those which have been consistently maintaining low prices. These better performing businesses will be able to retain relatively more of the benefits of any efficiency gains that they can make.

Three distribution businesses have been consistently maintaining lower prices while exhibiting higher productivity. These businesses will be able to gradually increase prices to more efficient and sustainable levels without breaching the price path threshold.

Distribution businesses will be assessed annually against the thresholds, over a regulatory period of five years beginning on 1 April 2004.

Transpower’s thresholds will be set for a period of one year from 1 July 2004, primarily due to uncertainties regarding the approach the Electricity Commission will take with respect to Transpower’s investment programme. For this one year period, Transpower’s price path threshold will be set the same as for average-performing distribution businesses.

The Commission also released today a report prepared for the Commission by Meyrick and Associates, titled Regulation of Electricity Lines Businesses, Analysis of Lines Business Performance (1996-2003). The report presents the analysis of industry performance used to inform the Commission’s decisions on allocating lines businesses to different groups.

The Commission’s final decisions and Meyrick and Associates’ report can be found on the Commission’s website, www.comcom.govt.nz.

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