Commission proposes adjustments to prices for electricity distribution services

The Commerce Commission has issued a draft decision to reset regulatory controls for 16 electricity distribution businesses from 2012-2015. The proposed reset would implement new regulatory rules and processes—called input methodologies—set by the Commission in December 2010, and result in price adjustments.

The price adjustments proposed by the reset will allow some businesses the opportunity to earn more so that they can achieve a reasonable return in the next three years, and to ensure that other businesses reduce their prices if they would otherwise have earned excess returns.

“The approach we have taken aims to ensure there is an appropriate balance between providing incentives for businesses to invest in their networks, and ensuring that consumers are being charged prices that are more aligned with the cost of the services they receive,” said Dr John Hamill, General Manager of the Commission’s Regulation Branch.

The approach to resetting prices proposed in this draft decision has been applied consistently across all businesses, but now uses objective information specific to each business in place of industry wide assumptions. If the proposed prices do not suit a business’s particular circumstances, that business can apply for a customised approach.

The proposed adjustments vary in size between a 20 per cent increase and 10 per cent decrease. Those businesses with increases include smaller regional businesses, and those businesses receiving decreases include the three largest businesses.

“Although the effect of a final price reset is likely to flow through to electricity consumers, actual changes in price may be different to those indicated by the draft decision. This is because businesses are free to adjust their prices across their networks to meet the Commission’s control on average prices, and charges relating to electricity distribution are only part of retail charges to consumers,” said Dr Hamill.

This draft decision on price resets marks the final consultation stage of an extensive process that started in February 2010. There is now a seven week period for submissions on the draft decision. A final decision will be made by 20 October 2011 and any changes arising from a reset of prices will apply from 1 April 2012.

Due to the Canterbury earthquakes, the draft decision does not apply to Orion New Zealand Limited. Separate discussions between Orion, the Commission and central Government are taking place to tailor appropriate regulatory arrangements.

You can read the Commission’s report, 2010-15 Default Price-Quality Path for Electricity Distribution Businesses – Reset of Starting Prices, CPI Adjustment and Other Amendments - Draft Decisions Paper, July 2011, at www.comcom.govt.nz/2010-2015-default-price-quality-path