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Electricity Lines Businesses

Issued 20 October 2004

Electricity Lines Businesses: Commission issues Assessment and Inquiry Guidelines

The Commerce Commission has issued Assessment and Inquiry Guidelines, as part of its implementation of a targeted control regime for electricity lines businesses under Part 4A of the Commerce Act.

The overall purpose of the targeted control regime is to promote the efficient operation of markets directly related to electricity distribution and transmission services, for the long-term benefit of consumers.

Commission Chair Paula Rebstock said that the regime was designed to ensure lines businesses are limited in their ability to extract excessive profits, face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands, and share the benefits of efficiency gains with consumers, including through lower prices.

As part of the targeted control regime, the Commission must set performance thresholds for the possible declaration of control in relation to lines businesses. The Guidelines outline the Commission's broad process and analytical framework for assessing threshold compliance by lines businesses and for undertaking post-breach inquiries where those thresholds are breached.

"The Guidelines are intended to increase certainty and transparency in respect of the Commission's approach to these tasks," said Ms Rebstock.

Ms Rebstock said that the Guidelines set out the options available to the Commission in responding to a breach of the thresholds. Declaring control of prices, revenue or quality is only one possible outcome.

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"The targeted control regime gives the Commission wide prioritisation powers," said Ms Rebstock. "These powers include the ability for the Commission to resolve a post-breach inquiry in a number of ways, including taking no further action if it determines this to be the most appropriate outcome."

A breach may also be resolved through an 'administrative settlement', involving the business concerned voluntarily reaching an agreement with the Commission on an appropriate course of action. "This means a better outcome may be achievable than would be the case through control. Settlements are already a well-established enforcement tool used by the Commission in relation to its other responsibilities under the Commerce Act and the Fair Trading Act," said Ms Rebstock.

"Only when the Commission is unable to reach an agreement with the business, and is of the view that control would be in the long-term interests of consumers, would it then publish its intention to declare control. However, before making any control declaration, the Commission must consult with interested parties."

The Commission intends to update its Guidelines from time to time as part of the ongoing implementation of the targeted control regime.

The Commission's Assessment and Inquiry Guidelines can be found on the Commission's website, http://www.comcom.govt.nz/electricity/Rep_Doc.cfm.

Part 4A of the Commerce Act 1986 (the Act), which commenced on 8 August 2001, establishes a regulatory regime for large electricity lines businesses (lines businesses). Among other things, the Commission must develop a targeted control regime for lines businesses. The Commission is required to set thresholds and assess the performance of electricity lines businesses against those thresholds. The thresholds are a screening mechanism to identify lines businesses whose performance may require further examination and, if required, control by the Commission.

The Commission's Assessment and Inquiry Guidelines applicable to the targeted control regime were first issued by the Commission on 7 August 2003, in draft form, and written submissions on the draft were invited from interested parties. The Commission has taken the submissions into account in revising the draft and finalising the first edition of the Guidelines.


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