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New maximum revenue proposed for lines


Tuesday 19th July 2011 1 Comment

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Vector, Powerco and Horizon Energy look to be losers under proposed changes to the maximum allowable net revenue for electricity distribution businesses.

The Commerce Commission today issued a draft decision to reset regulatory controls for 16 electricity distribution businesses from 2012 to 2015.

The proposed reset would implement new regulatory rules and processes -- called input methodologies -- set by the commission last December, and result in price changes.

The reset would allow some businesses the opportunity to earn more so they could achieve a reasonable return in the next three years, and to ensure that other businesses reduced prices if they would otherwise have earned excess returns, the commission said.

Previously the commission set out a price and quality path for electricity distribution businesses to follow from April 2010. Under the new proposal, if implemented, new price levels would take effect from April 2012.

The commission's reasons for proposing changes are set out in today's draft decision paper.

For Vector, the largest electricity distribution business, the maximum allowable revenue in 2012/13 would be $399.4 million, while for second-largest Powerco it would be $220.9m.

Along with most of the other businesses covered they would be allowed to increase revenue by the consumer price index in the following two years.

Four of the smaller companies would be allowed to increase revenue by the CPI plus 5 or 10 percent.

An indication of the proposed new price path showed Vector's maximum allowable net revenue being 9 percent lower in 2012/13, with Powerco's also 9 percent less and Horizon Energy's 10 percent less, while for most other businesses it would be higher, with Top Energy gaining 20 percent.

The commission said it stressed that the adjustments were indicative only and unlikely to represent the actual changes to individual charges or to retail prices.

Commission regulation branch general manager John Hamill said the approach being taken aimed to ensure an appropriate balance between providing incentives for businesses to invest in their networks, and ensuring that consumers were being charged prices more aligned with the cost of the services they received.

While the effect of a final price reset was likely to flow through to electricity consumers, actual changes in price may be different to those indicated by the draft decision, Hamill said.

That was because businesses were free to adjust prices across their networks to meet the commission’s control on average prices, and charges relating to electricity distribution were only part of retail charges to consumers.

A seven-week period is available for submissions on the draft decision, with a final decision by October 20.

Vector's share price was down 10c to $2.43 around noon.

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Comments from our readers

On 20 July 2011 at 7:50 am John R said:
The Commerce Commission has shifted the goal posts more times than you can count. It looks like Vector and the other power companies are a very easy and popular target for bureaucrats looking to justify their positions.
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