Funding decisions for electricity, gas, airport regulation

Commerce Minister Simon Power today announced increased funding for the Commerce Commission to regulate electricity and gas lines, and airports.

Under Part 4 of the Commerce Act, the commission regulates the price and quality of goods and services in markets which are considered monopolies, and regulated suppliers pay the commission a levy.

“The current levels of funding for the commission need updating because they were set before comprehensive changes to Part 4 in 2008,” Mr Power said.

Following public consultation, Cabinet approved an average levy increase of $1.7 million for the next three years. There will then be a review.

“An increase in funding is appropriate to ensure that investors have incentives to innovate, prices charged by monopoly suppliers are not excessive, and service quality standards are maintained.

“The additional funding will enable the commission to provide a quality regulation regime for the long-term benefit of consumers.”

Background

Part 4 of the Commerce Act 1986 provides a regulatory regime for natural monopolies. This includes regulation of electricity lines businesses (including Transpower), gas pipelines, and specified services of Auckland International Airport, Christchurch International Airport, and Wellington International Airport.

In February, the Ministry of Economic Development released a discussion document containing two proposals for the Commerce Commission’s funding levels:

1. To leave the funding levels as they are.
2. To increase the baseline by $2.7 million per year.

After receiving submissions, the Ministry developed a third option of an average of $1.7 million per year.

What are the new funding levels for Part 4?

The aggregate impact of the decision is set out below.

                                                                              Future years

   ($000)                                                               2011/12       2012/13       2013/14        2014/15        2015/16

  Current baselines                                                                                                                                             (excluding new Transpower functions)      4,367            4,667           4,667             4,667             4,667

  Additional funding approved by                                                                                                                                  Cabinet                                                             1,717             1,352           2,058             0                     0

 Proposed New Baseline                               6,084              6,019          6,725             No                   No                                                                                                                                                                  change           change

The funding levels vary from year to year according to the regulatory functions the commission is required to perform in each year. The funding levels also vary by sector.

The levy amount for each supplier will be based on the size of the supplier’s regulated asset base and the level of regulatory activities relating to that supplier.