The Commerce Commission has today granted an exemption to the NZ Defence Force (NZDF) under the Electricity Industry Reform Act 1998 (EIR Act).
Commissioner Dr Kate Brown said that NZDF's application for exemption from section 17 of the EIR Act has been granted, subject to certain terms and conditions.
NZDF owns and operates electricity distribution networks at its various bases throughout New Zealand. NZDF is a major purchaser of electricity, supplying both itself, some of its staff living on-base and also some commercial enterprises operating on its bases and providing services to NZDF. Common ownership of an electricity supply business and an electricity lines business is prohibited under the EIR Act.
Dr Brown said that in making its decision, the Commission noted that the NZDF:
had no incentive to overcharge the commercial consumers it supplied with electricity as this would merely result in increased charges to NZDF for the services it received from them;
allowed the consumers it supplied with electricity to use its electricity networks without charge;
generated electricity solely for its own use; and
agreed to charge its staff consumers at its average cost of electricity purchased without the addition of a profit margin.
The Commission was therefore satisfied that NZDF's incentives and opportunities to inhibit competition were no more than minimal.
The exemption does not take effect until published by way of notice in the Gazette. This will occur as soon as possible.
NOTICE OF EXEMPTION
The Commission, pursuant to section 81 of the Electricity Industry Reform Act 1998, exempts the New Zealand Defence Force from the application of section 17 of that Act in relation to a prohibited cross-involvement in an electricity lines business, being the electricity distribution networks owned and operated by the New Zealand Defence Force on it bases, installations and sites and an electricity supply business operated by it.
The exemption is subject to the following terms and conditions:
(a) That if the New Zealand Defence Force commences supplying line function services or electricity to other than its staff or to Safe Air Ltd, Babcock New Zealand Ltd and Serco Project Engineering Ltd or their assigns it notifies the Commission.
(b) That the New Zealand Defence Force generates electricity only for its own consumption except in the event of an emergency affecting a non-military population.
(c) That the New Zealand Defence Force advises the Commission of any increases or new charges which comprise any component of the electricity price it charges to its staff or to Safe Air Ltd, Babcock New Zealand Ltd and Serco Project Engineering Ltd or their assigns or any other person.
(d) That the New Zealand Defence Force does not introduce a charge for the use of its electricity lines business to any of the consumers it supplies with electricity.
(e) That the New Defence Force:
· removes the margin it presently adds to its own electricity and lines costs for electricity supply to Ohakea base in order to calculate the electricity price to staff consumers at Ohakea;
· charges Ohakea staff consumers on a revised basis using NZDF's own average electricity costs at Ohakea base;
· advises the Commission of the details of the revised basis of charging the Ohakea staff consumers; and
· retains the current methodology used to determine Whenuapai staff consumer electricity charges.
The Commission may vary or revoke this exemption in accordance with section 81(5) of the EIR Act.
The exemption takes effect from the date of publication of this Notice in the Gazette.
BACKGROUND
The EIR Act was passed last year and gives companies involved in electricity markets until April 1 this year to put in place corporate separation of their electricity generation and trading businesses from their lines businesses or to have obtained an exemption from the Commission.
Public copies of the CHH decision are available from reception at the Commission's Wellington office, level 7 Landcorp House, 101 Lambton Quay.
