Commission issues draft decision on electricity distribution default price-quality path

The Commerce Commission today released its draft decision to reset the default price-quality path for 16 electricity distributors.

The proposed reset will adjust the prices electricity distributors are able to charge for their services from next year. Under the proposal, some electricity distributors will be required to charge less for their services while some will be able to charge more.

“The price adjustments proposed are the first under the new Part 4 regime and rebalance prices stemming back to 2001 under the previous regime. The approach we have taken aims to ensure there is an appropriate balance between providing incentives for suppliers to invest in their networks, and ensuring that consumers are being charged prices that are more aligned with the cost of the services they receive,” said Dr Mark Berry, Commerce Commission Chair.

The proposed adjustments for individual suppliers in the 2013/14 year vary in size from a reduction of 8% to an increase of 11% before inflation. For four of the small distributors, their proposed increases are larger. The Commission has an obligation to manage price-shocks resulting from price adjustments that might be experienced by electricity consumers, so has smoothed the impact of these larger changes by capping increases at 15% per year. The average change across the industry over the next two years is an increase of 1% before inflation.

The reason for the proposed reset is to apply new upfront rules, processes and regulatory requirements — called input methodologies— which have been used to determine the price adjustments.

“Although the effect of a final price reset is likely to flow through to electricity consumers, the actual change in any consumers’ bill is likely to be different to the size of the change indicated by the draft decision. This is because the Commission only regulates the average prices distributors charge, meaning distributors can set prices for any individual customer in a manner of ways to meet this average. The charges relating to electricity distribution are also only part of the total retail bill consumers’ receive – about 30%,” said Dr Berry. Example calculations of the changes consumers could experience in their electricity bill are attached.

This draft decision is based on the input methodologies the Commission has determined. It is important to note to that these input methodologies are currently under appeal and are to be heard by the High Court from September to December. Also, if the proposed prices do not suit an electricity distributors’ particular circumstances, it can apply for a customised price-path.

The draft decision does not reset the default price-quality path for Orion New Zealand Limited. In light of the Canterbury earthquakes, Orion is currently assessing whether or not to apply for a customised price-quality path. If Orion chooses not to apply for a customised path by early 2013, the Commission will review whether Orion’s default price-quality path should be reset.

The Commission intends to make a final decision on the reset of the default price-quality path by 30 November 2012. Changes resulting from the reset default price-quality path would apply to suppliers from 1 April 2013.

The Commission is seeking submissions from interested parties by 1 October 2012, and cross-submissions by 12 October 2012. Submissions can be emailed to regulation.branch@comcom.govt.nz

You can find a copy of the draft decision on the Commission’s website at http://www.comcom.govt.nz/additional-input-methodologies-for-electricity-and-gas-dpps/