The Commerce Commission's decision today on how the Electricity Industry Reform Act (EIR Act) applies to Trans Tasman Properties Limited (TTPL) sets a precedent for property companies and will increase the choices available to their tenants.

Commissioner Dr Kate Brown said that the Commission's decision explains which of TTPL's activities are covered by the EIR Act and which are not.

Firstly, the Commission concluded that TTPL is an electricity lines business in relation to the embedded electrical wiring systems it owns.

Secondly, the Commission concluded that TTPL is an electricity supply business where it on-sells electricity to the tenants of its buildings. In this case, while TTPL owns a number of buildings, it had only sought an exemption in relation to the Finance Centre complex in Auckland.

"The Commission then considered whether an exemption could be granted to Trans Tasman as it is involved in both a lines business and a supply business in relation to the Finance Centre. Such an involvement is not allowed by the EIR Act," Dr Brown said.

"Two of the key purposes of the EIR Act are to enable consumers to have a choice of competitive electricity suppliers, which will lead to lower prices, and to prevent a 'monopoly' lines business from preventing consumers from exercising such a competitive choice."

TTPL has agreed to terms and conditions that mean:

  1. It will not charge any person for the use of its embedded electrical wiring system (lines) in the Finance Center;
  2. It will not prevent access, on reasonable terms and on a timely basis, by any competing electricity supply business wanting to supply electricity to the tenants of the Finance Center; and
  3. It will provide all tenants of the Finance Center to whom it supplies electricity with electricity consumption and billing information to enable the tenants to assess competitive options for the supply of their electricity.

"Because of Trans Tasman's agreement to these conditions, any incentives or opportunities for Trans Tasman to inhibit competition and defeat the purposes of the EIR Act become minimal. Trans Tasman gains a commercially viable solution, and the relevant consumers will be able to buy electricity from their landlord or shop around to compare deals. On that basis, the Commission has granted Trans Tasman an exemption from the EIR Act in relation to the Finance Centre," Dr Brown said.

The Commission also considered the issue of electricity used in the 'common areas' of buildings. The Commission concluded that the electricity purchased and used by TTPL in supplying common services to its buildings (for instance lifts and lights), is not caught by the EIR Act.

With a number of its other buildings, TTPL is proposing to set up an agency agreement with the tenants of each building to enable both TTPL and the tenants to benefit from lower prices by combining their electricity purchases to negotiate a lower price for supply from a single electricity retailer.

"Trans Tasman and other building owners are recognising that they can gain a market edge in attracting tenants by reducing the cost of electricity for those tenants", Dr Brown said.

The Commission concluded that TTPL's proposed agency agreement did not constitute an electricity supply business in terms of the EIR Act and therefore was not caught.

"No exemption was therefore required as the activity was not caught in the first place", Dr Brown said.

The Commission cautioned that, in other situations, it is conceivable that an 'agency agreement' may be structured in such a way as to defeat the purposes of the EIR Act. Building owners who view their 'captive' tenants as an opportunity to profit excessively from selling electricity, should consider their activities very carefully.

Background

The EIR Act was passed last year and came into effect on April 1 this year.

One of its requirements is that organisations must separate their electricity lines businesses from their electricity supply businesses that supply at least 2.5GWh a year or have an exemption from the Commission. The definitions in the EIR Act include wiring in buildings as a lines business and selling electricity to tenants as a supply business.

Dr Brown said that the Commission's role was to determine how the provisions of the EIR Act applied to TTPL's specific circumstances. Those circumstances are similar to those of many other larger property companies.

Media contact: Commerce Act Manager Geoff Thorn

Phone work (04) 498 0958

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

Commission media releases can be viewed on its web site www.comcom.govt.nz