Commerce Commission recommends type of regulation to apply to Transpower
14 April 2010
The Commerce Commission has recommended to the Minister of Commerce that Transpower be subject to individual price-quality regulation following the expiry of its administrative settlement with the Commission.
The administrative settlement was entered into under Part 4A of the Commerce Act 1986, prior to its repeal by the Commerce Amendment Act 2008. The Commission is required to recommend to the Minister, before the expiry of the administrative settlement, that Transpower be subject to either default/customised price-quality regulation or individual price-quality regulation under Part 4 of the Act.
Under the Act, price-quality regulation controls the price and quality of goods or services in markets where there is limited or no competition and little or no likelihood of a substantial increase in competition.
"The Commission believes individual price-quality regulation has many advantages over default/customised price-quality regulation in this instance. It allows more flexibility to accommodate Transpower's large and uncertain capital expenditure programme into a revenue path, and provides a more stable environment for setting and implementing long-term performance incentives," said Brent Alderton, General Manager Regulation, for the Commerce Commission.
"Relative to the other types of regulation considered by the Commission, individual price-quality regulation is, over time, likely to be the most efficient and cost-effective type of regulation for Transpower and in the best interests of consumers."
The Commission's recommendation of individual price-quality regulation is supported by Transpower and all parties who submitted during consultation.
The Commission's paper, Recommendation to the Minister of Commerce regarding the type of regulation to apply to Transpower, is available on the Commission's website under Electricity Transmission.
In December 2005, the Commission announced its intention to declare control of transmission services supplied by Transpower for breaches of the price-path thresholds set by the Commission under Part 4A of the Commerce Act 1986 (the Act). Following this announcement, Transpower indicated its preference to resolve its breaches through an administrative settlement. After consultation, the Commission published in October 2007 its preliminary decision not to declare control of Transpower's transmission services and to accept the administrative settlement proposed by Transpower.
After consultation with interested parties and further dialogue with Transpower, on 13 May 2008 the Commission published its decision to accept a revised settlement offer from Transpower. Under the administrative settlement, the Commission replaced Transpower's existing price path threshold with three distinct thresholds applying until 30 June 2011.
The Commerce Amendment Act 2008 repealed Part 4A of the Act and replaced it with a new Part 4. Under Part 4, the administrative settlement continues to apply until its expiry date. The Commission is required to recommend to the Minister, before that expiry date, whether Transpower should be subject to individual, or default/customised price-quality regulation under the Act.