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Commission sets thresholds for power lines coys

Tuesday 10th June 2003

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The Commerce Commission has set thresholds for the declaration of control in relation to electricity lines businesses, and also requirements of lines businesses to make public certain information relating to their performance against the thresholds.

Commission Chair John Belgrave said this is an important milestone in the regulatory regime for electricity lines businesses, which the Commission is required to develop under Part 4A of the Commerce Act.

"The thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if required, control by the Commission," added Mr Belgrave.

The Commission announced on 31 March 2003, its decision to adopt two thresholds - a price path threshold and quality threshold. Since then, the Commission, with input from interested parties, has been developing the final Gazette notice to set the thresholds. The Gazette notice was published on Friday 6 June.

The purpose of the price path threshold is to provide incentives for lines businesses to reduce their prices in real terms (and therefore to improve efficiency), to be limited in their ability to extract excessive profits, and to share the benefits of efficiency gains with consumers.

The purpose of the quality threshold is to provide incentives for lines businesses to not allow their reliability to fall as a means of reducing costs in response to the price path threshold, and to incentivise them to provide services at a quality demanded by consumers.

"The thresholds provide incentives for electricity lines businesses to maintain the quality of their services while reducing prices in real term," said Mr Belgrave.

The Commission's decisions related to the thresholds and information requirements are set out in a Decision Paper Regulation of Electricity Lines Businesses, Targeted Control Regime, Threshold Decisions, also published on 6 June 2003. This paper was originally released on 2 May 2003 and has been re-released, as previously announced by the Commission, updated to reflect the technical changes made as a result of the Gazette notice drafting process. The Decision Paper also provides information on:

§ the process the Commission will follow for resetting the price path threshold to apply from 1 April 2004; and
§ the process the Commission will follow for developing the detail of the investigation and control parts of the regulatory regime, including its views on WACC and asset valuation. The development of this detail is necessary for the implementation of those parts of the regime (if required), as well as to give guidance to electricity lines businesses on what consequences might follow a breach of the thresholds.

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