Issued Friday 8 August 2003

The Commerce Commission today released draft guidelines relating to the regulation of large electricity lines businesses. This work is part of the Commission's continuing development of a regulatory regime for lines businesses, as required by Part 4A of the Commerce Act.

The draft guidelines set out the process and analytical framework the Commission proposes to follow when assessing lines businesses against thresholds set by the Commission for the declaration of control and when conducting an inquiry to determine whether or not to declare control in relation to a lines business. The Commission can investigate lines businesses if they breach the thresholds, and determine whether or not to declare control of goods or services supplied by those businesses.

The Commission also released today a paper prepared for the Commission by Dr. Martin Lally, titled The Weighted Average Cost of Capital for Electricity Lines Businesses. The weighted average cost of capital for an electricity lines business is an important element of the Commission's analytical framework described in the draft guidelines. The Commission intends to draw on Dr. Lally's paper when it applies the analytical framework.

The Commission's draft guidelines and Dr Lally's paper can be found on the Commission's website, www.comcom.govt.nz.

Thresholds for the declaration of control set by the Commission are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if necessary, control by the Commission. The Commission set a price path threshold and a quality threshold on 6 June 2003 and will make its first assessments of lines businesses' performance against those thresholds toward the end of this year.

Interested parties are invited to make written submissions on the draft guidelines by 8 September 2003. The Commission will release final guidelines after considering submissions.

Further details regarding the thresholds set by the Commission for the declaration of control in relation to large electricity lines businesses can be found in a notice, published in the New Zealand Gazette on 6 June 2003 (the Commerce Act (Electricity Lines Thresholds) Notice 2003), and in a decision paper (Regulation of Electricity Lines Businesses, Targeted Control Regime, Threshold Decisions), published by the Commission also on 6 June 2003.

Media contact:

Geoff Thorn, Director, Business Competition Branch

Phone work (04) 924 3620, mobile (029) 924 3620

Jackie Maitland, Communications Manager

Phone work (04) 924 3708, mobile 029 924 3708

Background

Part 4A of the Commerce Act 1986, which commenced on 8 August 2001, establishes the regulatory regime for large electricity lines businesses. The Commission is required, inter alia, to set thresholds and assess the performance of electricity lines businesses against those thresholds. If one or more of the thresholds are breached by an electricity lines business, the Commission could further investigate the business and, if required, control their prices, revenue or quality. In effect, the thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if required, control by the Commission.

The Commission released a Discussion Paper on 21 March 2002 and held a public conference for interested parties to make their views known in mid-July 2002. The Commission released draft decisions on the high-level design of the thresholds on 23 December 2002 and draft decisions on implementation detail on 31 January 2003. The Commission sought submissions on its draft decisions, held a conference and invited cross-submissions. On 2 May 2003 the Commission released a Decision Paper and a draft Gazette notice and invited comments on the notice. Having taken these comments into account, the Commission set thresholds and published a notice in the New Zealand Gazette on 6 June 2003.

The purpose of the targeted control regime, as set out in section 57E of the Commerce Act, is to promote the efficient operation of markets directly related to electricity distribution and transmission services through targeted control for the long-term benefit of consumers by ensuring that suppliers-

(a) are limited in their ability to extract excessive profits; and

(b) face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and

(c) share the benefits of efficiency gains with consumers, including through lower prices.

Relevant media releases

Commission media releases, as well as relevant publications, can be viewed on its web site www.comcom.govt.nz. Relevant media releases include:

.2003/172 - Electricity Lines Businesses: Commission sets thresholds (10 June 2003)

.2003/167 - Update: Regulation of electricity lines businesses (30 May 2003)

.2003/150 - Electricity Lines Businesses: Commission releases thresholds decision paper (2 May 2003)

.2003/132 - Electricity Lines Businesses: Commission decides on thresholds

(31 March 2003)

.2003/118 - Electricity Lines Businesses: Commission confirms conference details

(27 February 2003)

.2003/104 - Electricity Lines Businesses: Commission releases draft decisions on implementation detail (31 January 2003)

.2002/96 - Electricity Lines Businesses: Commission releases first of two draft decision papers (23 December 2002)

.2002/45 - Update: Regulation of electricity lines businesses (2 October 2002)

.2002/31 - Commerce Commission approves the asset valuations of 28 electricity lines companies (4 April 2002)

.2002/25 - Commerce Commission releases discussion paper on control of electricity lines businesses (21 March 2002)

.2002/22 - Commission to review electricity lines valuation methodologies: Issues Paper attached (14 March 2002)