The Commerce Commission is taking a lead to provide enhanced transparency and certainty within the regulatory regimes administered under the Commerce Act. This has resulted in the launch of a work programme to develop economic regulatory principles and guidelines for electricity transmission and distribution and gas distribution.
The guidelines will assist the Commission to promote outcomes comparable to competitive markets in regulated industries where competition does not exist. These include incentives to invest, efficiency gains which are shared by consumers (including through lower prices), and limiting excessive returns over time.
Purpose
The purpose of developing the guidelines is to provide a transparent and consistent framework for regulating industry sectors. Initially the work programme will develop generic cross-industry economic regulatory principles that will subsequently be applied to guidelines at an industry-specific level.
The key reason for providing price and quality control, or economic regulation, is to counter the ability of businesses that are not faced with competition or the threat of competition to charge excessive prices and/or reduce quality. Such firms may also have little incentive to improve efficiency and make investments in a timely manner. These sectors tend to be those supplying core infrastructure, such as electricity lines, gas pipelines, and airports. The services provided are vital to the New Zealand economy and consumers.
Stages of the Project
The Regulatory Principles and Guidelines Project consists of three stages:
- First Stage: Develop generic cross-industry economic regulatory principles;
- Second Stage: Develop detailed guidelines for subjects such as pricing principles or asset valuations; and
- Third Stage: Apply guidelines to develop industry-specific methodologies.
Update
On 25 July 2008, the Commission advised that it would be releasing a Draft Statement of Principles as part of the Regulatory Principles and Guidelines Project. The Commission now expects to release this document no later than November 2008.