Consultation begins on Unison administrative settlement
Published09 Nov 2006
The Commission today released its consultation package on an administrative settlement offer proposed by Unison Networks as an alternative to the imposition of regulatory control.
The Commission today released its consultation package on an administrative settlement offer proposed by Unison Networks as an alternative to the imposition of regulatory control.
The package released today includes Unison's settlement offer, and the Commission's analysis of it.
As part of the settlement, Unison will voluntarily reduce its average electricity line charges from 1 December this year and will comply with the Commission's existing price path threshold for the remainder of the current five-year regulatory period.
Unison will also rebalance its charges to customers in different regions. The Commission had found that Unison was earning significant excess profits, with the greatest impact on consumers in Taupo and Rotorua.
"The Commission's preliminary view is Unison's offer is consistent with the long-term interests of consumers, and with the objectives of the regulatory regime for electricity lines businesses," says Commerce Commission Chair Paula Rebstock.
"The settlement will limit Unison's ability to earn excessive profits," says Ms Rebstock.
"It will also ensure that the company has incentives to become more efficient, and that it shares those efficiency gains by delivering lower and more equitable pricing for consumers."
Complying with the price-path threshold will limit Unison's ability to earn excessive profits. The incentives to improve efficiency arise because the company can keep some of the additional profits it makes from efficiencies gained over the settlement period.
Ms Rebstock noted that Unison's offer includes a commitment to spend what is 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.
Unison's settlement 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 line charges will decrease. The distribution component of consumers' power bills will go down in many cases, but in some instances it will increase.
The Commission noted that the average price reductions Unison will make under the settlement are not as large as the potential price impacts of control presented in the Commission's intention to declare control in September 2005. Reasons for this difference are:
- Unison has already made significant price reductions to Rotorua and Taupo consumers in April this year;
- earlier revenue information provided by Unison to the Commission was incorrect;
- Unison has since increased its capital and maintenance expenditure forecasts to maintain reliability of supply, and the Commission considers these increases are reasonable; and
- prices acceptable under a comparatively low cost and less intrusive settlement arrangement should not be seen as indicative of the likely level of prices under control.
The consultation package has been released so that interested parties can provide their views. The package comprises the Commission's draft reasons for accepting Unison's offer and for not declaring control, the Commission's review of Unison's 2006 asset management plan, and a full copy of Unison's offer. Submissions are due by 29 November 2006.
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 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 Networks.
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.