Build Regulatory Regime To Suit NZ Circumstances

Tuesday, July 23, 2002

Build Regulatory Regime To Suit NZ Circumstances

In Powerco’s presentation today to the Commerce Commission hearings on price control for electricity lines businesses, it urged the Commission to focus on delivering a regulatory regime best suited for the particular circumstances in New Zealand.

Powerco Chief Executive Steven Boulton said it was important to acknowledge that New Zealand currently has the lowest international delivered price of electricity to residential consumers.

“Building a regime to maintain this position is critical. The heavy-handed regulation formulae used in the 1980s and 1990s in markets such as Britain and Australia are simply not appropriate here now.

"In New Zealand, heavy-handed regulation measures, which regulate the inputs of companies, are simply not necessary. Not only are our prices amongst the lowest in the world, but in the distribution sector network quality and reliability have been improving in the past five years.

“Today’s electricity price alone should not be regarded as the problem that needs to be fixed here. And price paths, set by the Commerce Commission as part of its Option One model, are not the answer.

“What’s really wrong in New Zealand – and the reason why some regulation of electricity lines businesses was considered to be necessary – is that it is currently impossible for consumers to tell whether they are getting a good deal. Where they are not, there is no mechanism for intervention.

“Powerco accepts the need for some regulatory intervention for the long term benefit of consumers. However, we propose a new model, centred on the price-service trade-offs that companies make in order to deliver the desired service, at a price consumers accept as providing value.

“Under the Powerco model, the Commission would audit and approve company processes, to ensure companies are developing and implementing well-balanced price-service models, allowing for differences in geography, history, asset base, consumption type and consumer preferences,” Mr Boulton said.

In addition, Powerco feels strongly that if it is to achieve long term benefits for consumers, the Commission must extend its regulatory focus across the whole electricity sector – i.e. generation, transmission, distribution and retail.

“Consumers do not pay their money only to lines companies. The product they buy is ‘delivered electricity’ – and it is therefore important that consistent regulatory principles are applied to all parts of the sector that contribute to this product. We believe this is consistent with the Purpose Statement in Part 4A of the Commerce Act, which instructs the Commission to consider markets directly related to distribution and transmission.”

Powerco is New Zealand’s third largest electricity and gas utility with around 205,000 consumers connected to networks in Taranaki, Wanganui, Rangitikei, Manawatu, Wairarapa and Wellington and has more than 16,000 shareholders. Powerco’s asset base is around $867 million.

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