Lines companies’ price-quality path reset - views sought

Commission seeks views on lines companies’ price-quality path reset
The Commerce Commission has today released a consultation paper seeking feedback on the potential issues it will be considering when resetting the price-quality paths that will apply to 17 regional electricity lines companies in New Zealand.

These monopoly lines companies provide an essential service and charge consumers around $2 billion per year. To ensure these companies continue to provide reliable service to consumers – and are limited in the prices they charge – the Commission sets the maximum prices and minimum quality standards that they must meet.

Deputy Chair Sue Begg said the Commission is seeking views from all stakeholders before resetting prices and quality standards for the next regulatory period starting 1 April 2020.

“The current quality standards are focused on ensuring that consumers on each network do not experience more frequent or longer outages relative to historical levels,” Ms Begg said.

“For this reset, we are interested in hearing from customers whether the current quality standards best reflect their expectations. We are also exploring whether other aspects of quality might also be regulated. For example, we could include in the quality standards the notification period lines companies provide customers for planned outages or their response times to consumer calls.”

A copy of the DPP consultation paper can be found on the Commission’s website. Submissions close on 20 December 2018. Cross-submissions are due 31 January 2019.

Background

Electricity lines companies are regulated under Part 4 of the Commerce Act
Lines companies (also known as Electricity Distribution Businesses or EDBs) are regulated under Part 4 of the Commerce Act 1986 (Act). Part 4 provides for regulation in markets in which there is little or no competition, and little or no likelihood of a substantial increase in competition.

The Commerce Commission applies Part 4 regulation to EDBs by setting price-quality paths that limit the prices EDBs can charge, and establish minimum standards of quality that EDBs must meet in supplying electricity to their consumers. It also sets requirements for the public disclosure of information relating to the EDBs financial performance and the physical performance of its network (also known as ‘information disclosure’).

EDBs that are deemed ‘consumer-owned’ under Part 4 are subject only to information disclosure regulation, whereas EDBs not meeting the consumer-owned criteria are subject to both information disclosure and price-quality regulation.

The Commission does not control what EDBs charge individual consumers, nor do we tell electricity retailers what they can and cannot charge their customers. The Commission sets the maximum revenue that EDBs can charge.

The current default price-quality paths for EDBs are due to be reset
The current default price-quality paths (DPPs) that apply to EDBs are due to expire on 31 March 2020. The Commission must reset the DPPs before that time and specify new maximum prices and minimum quality standards that will apply from 1 April 2020.

The new DPPs will apply to EDBs for a period of 4-5 years unless an EDB applies to the Commission for a customised price-quality path (or CPP). CPPs are an option available to EDBs under the Act which allows for greater tailoring to an EDB’s particular circumstances than the generic DPPs which apply to all EDBs by default at the start of each period.

Currently, there are two EDBs on CPPs that will not be subject to the new DPPs when they commence on 1 April 2020. These are Powerco and Wellington Electricity, which are on CPPs from 2018-2023 and 2018-2021 respectively. Orion is also currently on a CPP, which will expire in 2019 prior to the reset of the current DPP.

The following table lists the EDBs currently subject to price-quality regulation, under both the DPP and CPPs.

The process to reset the DPP
In June 2018 the Commission published a paper setting out its intended process for resetting the current DPP by 28 November 2019. It updated its process in September 2018 following submissions, setting out the interim steps to reach its November 2019 target for a final decision on the new DPP to apply to EDBs. These steps are:
• The paper published today setting out issues the Commission has identified for the new DPP.
• Workshops in late February/early March 2019 to discuss priority issues following feedback from submissions on the consultation paper.
• Publishing a draft decision in May 2019 proposing a new set of maximum prices and minimum quality standards to apply to EDBs from 1 April 2020 for feedback.

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