Unison to rebalance power prices in Hawke's Bay, Rotorua, Taupo
Published27 Sep 2006
Unison Networks will voluntarily reduce its average prices from 1 December this year and will comply with the Commerce Commission's price path threshold for the remainder of the current five-year regulatory period.
The voluntary move forms part of an administrative settlement offer presented to the Commission earlier this month. It follows earlier price reductions to Rotorua and Taupo consumers in April this year.
An administrative settlement is an alternative to regulatory control being imposed. The Commission announced its intention to declare control of Unison in September 2005 after finding the company was earning significant excess profits, with the greatest impact on consumers in Rotorua and Taupo.
"The Commission has reviewed Unison's settlement offer and considers that it forms a suitable basis for consultation with interested parties," said Commerce Commission Chair, Paula Rebstock.
"The Commission's preliminary view is that Unison's offer should be accepted. We commend Unison for acting swiftly to address the inefficiencies it has identified in its current pricing structure.
"Unison's decision to comply with the price path threshold and to rebalance its tariffs underscores the effectiveness of the current regulatory regime in delivering long-term benefits for consumers," Ms Rebstock said.
"Workable solutions for both consumers and businesses can be achieved without the Commission necessarily having to impose control on an electricity lines company."
Unison's offer also involves rebalancing its charges to different customer groups, so the prices paid by consumers reflect the costs of supplying them. The rebalancing means that Unison's overall revenues and average charges will decrease. The distribution component of consumers' power bills will go down in many cases, but in some instances it will increase. Unison's distribution charges comprise around 20% - 40% of the average power bill.
Ms Rebstock noted that Unison's offer includes a commitment to undertake the level of expenditure needed to maintain network performance. The company would do this without breaching its price path threshold.
"The Commission is committed to ensuring there is efficient investment in electricity distribution networks to maintain and improve reliability of supply," Ms Rebstock said.
"Therefore, we have also reviewed Unison's 2006 asset management plan, the principal planning document underpinning Unison's efforts to improve efficiency and provide quality services."
Ms Rebstock said the review of the asset management plan showed that Unison's current practices for managing its maintenance and asset renewal budgets are in line with good industry practice. The Commission would continue to monitor Unison's asset management practices, as well as Unison's actual network expenditures compared to its projections, Ms Rebstock said.
The Commission will release details of Unison's administrative settlement offer in October, so that interested parties can provide their views. The consultation package will include the Commission's review of Unison's 2006 asset management plan.
If, after taking into account the views of interested parties, the Commission does not accept Unison's offer, then the Commission will still need to decide whether or not to declare control. If the Commission's preliminary view is confirmed and Unison's offer is accepted, then the Commission will be able to close its post-breach inquiry into all of Unison's past threshold breaches.
Background Unison.
Electricity distribution services.
The regime.
The companies are regulated by having thresholds set for them that govern the quality of services they deliver and/or how much they can raise their prices by each year. The price thresholds are linked to the Consumer Price Index rate of inflation with the current five-year regulatory period lasting from 1 April 2004 to 31 March 2009. The thresholds are a screening mechanism the Commission uses to identify distribution businesses whose performance may warrant further examination, and, if necessary, control of their prices, revenues and/or service standards.
Control.
Intention to declare control of Unison.
In its intention to declare control of Unison, the Commission outlined its preliminary findings that Unison was earning significant excess profits, with the greatest impact on consumers in Rotorua and Taupo. On 1 April 2006, Unison reversed its most recent distribution price rises to Rotorua and Taupo consumers, with consumers saving, on average, about $40 per year in Rotorua and $46 in Taupo. In response, the Commission delayed its decision whether to place Unison's electricity distribution services under control. This delay gave Unison time to prepare an administrative settlement offer for the Commission.
Administrative settlement.