Commerce Commission reaches settlement with Wellington Electricity on its 2012 price path breach

The Commerce Commission has signed an out-of-court settlement agreement with Wellington Electricity Lines Limited (Wellington Electricity) after it breached its price path for the 1 April 2011 to 31 March 2012 assessment period.

The price path restricts the amount of revenue an electricity distributor can earn in a given year. Wellington Electricity exceeded the price path by $116,757 because the costs it was able to pass through to consumers came in lower than it had forecast. The parties agree this amounts to a breach of the Electricity Distribution Services Default Price-Quality Path Determination 2010 and a contravention of section 87(1)(a) of the Commerce Act 1986.

“The Commission welcomes the settlement agreement, which is a cost effective way of resolving the breach.” said Commerce Commission Deputy Chair Sue Begg. “We acknowledge the constructive way in which Wellington Electricity approached the settlement process in order to return the amount it gained from the breach.”

Wellington Electricity will reduce the amount it can earn in the 2014/2015 year by $148,214 to compensate for the amount it over charged in the 2011/2012 year. This amount reflects the gain to Wellington Electricity as a result of the breach and has been adjusted for the time value of money.

Background

Wellington Electricity Lines Limited is the electricity distributor that delivers electricity to around 160,000 homes and businesses in the Wellington, Porirua and Hutt Valley areas.

Part 4 of the Commerce Act 1986 provides that all suppliers of electricity distribution services are subject to default/customised price-quality regulation unless they are exempt.

Wellington Electricity is not exempt from price-quality regulation and is subject to a default price-quality path determination that limits the amount of notional revenue that Wellington Electricity is allowed to earn in each annual assessment period.

Wellington Electricity is required to provide the Commission with an annual self-assessment against the price path following each annual assessment period, called a compliance statement.
On 5 June 2012, Wellington Electricity submitted its compliance statement for the assessment period beginning on 1 April 2011 and ending on 31 March 2012, stating that it breached its price path by $116,757 or 0.11% of allowable notional revenue.

Wellington Electricity asserts and the Commission accepts that the breach of the price path was due to actual pass-through costs coming in lower than forecast.

The Commission considers, and Wellington Electricity has acknowledged, that the breach of the price path amounts to a contravention of section 87(1)(a) of the Act in that it is a contravention of a price-quality path requirement applying to regulated goods or services.

The settlement agreement can be viewed at www.comcom.govt.nz/default-price-quality-path-enforcement-responses.