The Commerce Commission today set thresholds as part of the targeted control regime relating to large electricity distribution businesses. These thresholds apply for a five year regulatory period beginning tomorrow, 1 April 2004.

Commission Chair Paula Rebstock said this is an important milestone in the regulatory regime for electricity lines businesses, which the Commission is required to develop under Part 4A of the Commerce Act.

“The thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if required, control by the Commission, of their prices, revenues or quality standards,” added Ms Rebstock.

The Commission announced on 23 December 2003 its final decisions on the thresholds that would apply from 1 April 2004. Since then, the Commission has been developing, with helpful input from interested parties, the legal text of the Gazette notice used today to set the thresholds.

Ms Rebstock said both the price path and the quality thresholds first set by the Commission for electricity distribution businesses in June last year, and which apply until today, have been retained. However, new criteria and parameters apply.

“The purpose of the price path threshold is to provide incentives for distribution businesses to improve efficiency, share the benefits of efficiency gains with consumers over the long term (including through lower prices in real terms), and be limited in their ability to extract excessive profits,” said Ms Rebstock.

“The purpose of the quality threshold is to provide incentives for lines businesses to not allow their reliability to fall as a means of reducing costs in response to the price path threshold, and to supply electricity distribution services at a quality demanded by consumers.”

The Commission’s decisions related to the thresholds are set out in a decision paper, Regulation of Electricity Lines Businesses, Targeted Control Regime, Threshold Decisions (Regulatory Period Beginning 2004), re-issued today. This paper was originally released on 23 December 2003 and has been re-released, as previously announced by the Commission, and updated to reflect the technical changes made as a result of the Gazette notice drafting process.

Transpower

The thresholds currently applying to Transpower New Zealand Limited remain until 30 June 2004. Transpower’s thresholds do not need to be reset until that date. However, the Commission’s decision paper indicates that the Commission intends to reset Transpower’s thresholds for a period of one year only from 1 July 2004. The shorter regulatory period for Transpower is primarily due to uncertainties regarding the approach the Electricity Commission will take with respect to Transpower’s investment programme.