Electricity default price-quality path

Default/customised price-quality regulation is a type of regulation under Part 4 of the Commerce Act 1986 that applies to 17 electricity distribution businesses (EDBs) across New Zealand:

Alpine Energy Limited

Aurora Energy Limited

Centralines Limited

Eastland Network Limited

Electricity Ashburton Limited

Electricity Invercargill Limited

Horizon Energy Distribution Limited

Nelson Electricity Limited

Network Tasman Limited

Orion New Zealand Limited

OtagoNet Joint Venture

Powerco Limited

The Lines Company Limited

Top Energy Limited

Unison Networks Limited

Vector Limited

Wellington Electricity Lines Limited

The remaining 12 EDBs across the country are exempt from default/customised price-quality regulation as they meet the 'consumer-owned' exemption criteria under the Act. More information on these criteria – including the 12 EDBs that are currently exempt – can be found here.

Why regulate price and quality?

As suppliers of electricity lines services, EDBs operate in a market where there is little or no competition, and little prospect of future competition.

Price-quality regulation is designed to ensure that EDBs have similar incentives and pressures to suppliers operating in competitive markets to innovate, invest and improve their efficiency. It also aims to limit the ability of suppliers to earn excessive profits, while also ensuring that consumer demands on service quality are met.

What are the features of default/customised price-quality regulation?

Default/customised price-quality regulation has several main features:

  • price-quality paths for all suppliers are set by the Commission in a relatively low-cost way
  • a 'default path' that applies to all regulated suppliers for a regulatory period that is between four and five years
  • individual suppliers have the opportunity during the regulatory period to apply to the Commission for an alternative or 'customised' price-quality path to better meet the particular circumstances of the individual supplier
  • EDBs may incur penalties for breaches of price-quality paths as set out in Part 6 of the Act.

What makes up a default price-quality path?

The main components of a default price quality path (DPP) are:

  • the maximum prices/revenues that are allowed at the start of the regulatory period (ie starting prices)
  • the annual rate at which all EDBs' maximum allowed prices can increase (ie rate of change) - this is expressed in the form of 'CPI-X', meaning prices are restricted from increasing each year by more than the rate of inflation less a certain number of percentage points (termed an 'X-factor')
  • the minimum service quality standards that must be met.

The Commission must also reset the components of a DPP before it expires to create a new path for the next regulatory period. A DPP reset is an opportunity to determine appropriate price and quality controls for the future to ensure the objectives of the Part 4 regulatory regime are being promoted.

What makes up a customised price-quality path?

A customised price-quality path (CPP) has the same essential components as a DPP. However, a CPP differs from a DPP because the Commission can consider the specific circumstances of a supplier to set a path that better suits the supplier's needs.

The rules and processes for customised price-quality path proposals, including the requirements for a proposal and the criteria the Commission must follow when evaluating a proposal are set out in the input methodology determination applying to EDBs.

Following the expiry of its CPP, a supplier will transition back onto the DPP, although it still retains the option of making another CPP proposal at a later date.

Information on previous regime

The current price-quality regulation regime took effect on 1 April 2009 following the passing of the Commerce Amendment Act in November 2008. Prior to this date, all EDBs were subject to the Part 4A thresholds regime, which was established in 2001.    

2015-2020 Default price-quality path

The 2015–2020 default price-quality path currently applies to electricity distribution businesses. It took effect on 1 April 2015 and expires on 31 March 2020.

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2010-2015 Default Price-Quality Path

The 2010-15 default price-quality path is the previous default price-quality path that applied to electricity distribution businesses. It took effect on 1 April 2010 and expired on 31 March 2015.

The path was reset mid-period in 2012 to apply input methodologies for the first time.

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2009-2010 Default Price-Quality Path

The 2009-10 default price-quality path applied to EDBs for the period 1 April 2009 to 31 March 2010.  

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Default price-quality path compliance

Non-exempt electricity distribution businesses are required to submit an annual compliance statement that assesses their compliance with the default price-quality path.

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Default Price-Quality Path Enforcement Responses

Information about the Commission's enforcement responses to non-compliance with the default price-quality path for electricity distribution businesses

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