Electricity distribution businesses’ price-quality

Media Release - Determination for electricity distribution businesses’ price-quality path released

The Commerce Commission has today released its determination and decisions paper for the price-quality path which will apply to electricity distribution businesses from 1 April 2010. This marks the first determination published by the Commission under the Commerce Act’s new Part 4 regime and announces significant decisions for electricity distribution businesses on price and quality.

These decisions include the confirmation of the Commission’s earlier draft decisions to allow a rate of change in aggregate prices of 0 per cent relative to inflation and to set annual reliability limits based on historic reliability performance. This will allow businesses to increase prices by the rate of inflation whilst ensuring the quality of supply to consumers is at least maintained.

“The determination and the accompanying decisions paper are the result of a substantial consultation process and represent an important milestone in the transition to the new Part 4 regulatory regime,” said Dr Mark Berry, Commerce Commission Chair. “The Commission anticipates this determination will provide significant benefits to both regulated businesses and their consumers through greater certainty and shared efficiency gains.”

Part 4 of the Commerce Act 1986 regulates suppliers of electricity lines services, including the 29 electricity distribution businesses currently operating in New Zealand. Default price-quality regulation, in the form of price-quality paths, applies to all electricity distribution businesses other than those exempt on the basis of consumer ownership. Under the Commerce Act, the Commission must reset the current default price-quality path to specify prices and quality standards that will apply from 1 April 2010.

The determination and the decisions paper will be available on the Commission’s website www.comcom.govt.nz under Industry Regulation/Electricity/Distribution Price-Quality/2010-2015 Default Price Path.

A summary of the Commission’s decisions will be published in the New Zealand Gazette today. The Commission also intends to release a process paper on future work in relation to the reset default price-quality path, including starting price adjustments, in the first quarter of 2010.

Background

In October 2008, Part 4 of the Commerce Amendment Act introduced significant changes to the regulation of suppliers of electricity lines services. These services are subject to regulation as they are supplied in markets where there is little or no competition, and little or no likelihood of a substantial increase in competition.

The purpose of these changes to Part 4 is to promote the long-term benefits of consumers. The Act provides that the Commission should do this by promoting outcomes that are consistent with outcomes produced in competitive markets, such that suppliers of regulated services have incentives to innovate and invest, improve efficiency and provide services at a quality that consumers demand; share with consumers the benefits of efficiency gains in the supply of those services through lower prices; and are limited in their ability to extract excessive profits.

Under Part 4, suppliers of electricity lines services in New Zealand are subject to price/quality regulation referred to as price-quality paths. A price-quality path may set the prices that suppliers of electricity lines services can charge. It also defines the standards for quality of services that they must provide to their customers.

Electricity distribution businesses, which provide distribution services between Transpower and end-users, are defined as being suppliers of electricity lines services. All 29 electricity distribution businesses in New Zealand, except for those exempt on the basis of consumer ownership as defined in section 54D of the Act, must comply with the default price-quality path set by the Commission. As an alternative to default price-quality paths, suppliers may apply to the Commission for a customised price-quality path that better reflects their specific circumstances.

ENDS

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