Commission and Vector in administrative settlement talks

The Commerce Commission is discussing with Vector Ltd an administrative settlement after the company breached price thresholds set under Part 4A of the Commerce Act.

Commerce Commission Chair Paula Rebstock confirmed today that the Commission has commenced an investigation into Vector's threshold breaches and is in discussions with Vector about a settlement.

"We are fairly confident that we can achieve an administrative settlement that is in the long term interest of consumers," said Ms Rebstock.

"The key issue here is the imbalance in Vector's charges to different consumer types."

Background

The regime.

The Commerce Commission administers regulation of 28 electricity distribution companies and Transpower under Part 4A of the Commerce Act. The companies are regulated because they face limited competition, and without regulation could charge too much for their services and earn excess profits.

The companies are regulated by having thresholds set for them that govern the quality of services they deliver and/or how much they can raise their prices by each year. The price thresholds are linked to the Consumer Price Index rate of inflation.

Since the targeted thresholds regime was implemented in 2001, the Commission has twice published its intention to declare control, of Unison Networks' electricity distribution services in September 2005 and of Transpower's transmission services in December 2005. In both instances the Commission is now in the process of considering administrative settlements that, if agreed, would remove the need for control to be imposed.

Control.

If companies breach price or quality thresholds set for them, the Commission can consider imposing control on their electricity services. If the Commission makes a declaration of control it can then set rules termed an "authorisation" governing the prices, revenue and/or quality of those controlled services for up to five years. While the company may face penalties if it does not comply with those rules, the operation of the company will continue to be undertaken by its management and Board of Directors as normal. Control is not intended to compensate consumers for any past overcharging but to put in place constraints on the controlled business's future performance.

Administrative settlement.

As an alternative to control being imposed, the company can reach an administrative settlement with the Commission. This usually involves the Commission and the company agreeing to pricing levels and quality measures for a period of up to five years. The result is that prices and quality are maintained at levels the Commission considers appropriate for the long term interests of consumers, without the need to impose control, which can be intrusive and costly.