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Settlement reached with Nelson Electricity over exceeding revenue cap by $91,793

22 November 2017

The Commerce Commission has reached an out of court settlement with Nelson Electricity Limited after it exceeded its revenue cap for the year to 31 March 2017.

Nelson Electricity manages and operates electricity distribution for the central Nelson city area, with its network connecting to approximately 9,000 homes and businesses. As a monopoly under Part 4 of the Commerce Act, the Commission sets the maximum revenues it can earn and the minimum standards of quality it must deliver.

In June 2017, Nelson Electricity reported that it breached the revenue cap set for it by the Commission by $91,793, or 1.37%.

“The Commission accepts the breach was due to an inadvertent error by Nelson Electricity. This arose when it calculated its revenue cap using estimated quantities of electricity instead of actual quantities,” Commission Deputy Chair Sue Begg said.

“We acknowledge the constructive way in which Nelson Electricity has approached the settlement process and are pleased to have resolved the breach without having to resort to the Courts.”

Nelson Electricity has agreed it will compensate for the error by reducing its revenue cap for the year beginning 1 April 2018 by at least $105,075 (being the over-recovered amount adjusted for time value of money).

The settlement agreement is available on our website and is consistent with previous settlement agreements reached by the Commission for this type of breach. 

Background

Price-quality regulation

Price-quality regulation applies to 17 of New Zealand’s 29 electricity distribution businesses (the remaining 12 community-owned electricity lines companies are exempt). This form of regulation is designed to mimic competition by incentivising regulated suppliers to invest, innovate and operate efficiently, as well as limiting their ability to earn excessive profits.