Lines companies slate regulatory proposals

By CHRIS DANIELS Energy Writer


Commerce Commission plans for regulating the monopoly power lines business have been slated in the latest round of consultation with the industry.

Many of the submissions, now posted on the Commerce Commission's website, criticise the lack of time given for the companies to put together a proper response to the plans.

Introduction of a "profit threshold" - designed to restrain the companies from earning any more than their cost of capital - is another source of distress.

PricewaterhouseCoopers, which put together a submission on behalf of 18 lines companies, told the commission there was uncertainty about what would happen if a company breached one of the new thresholds.

"The uncertainty following a breach will have the effect of making the thresholds pseudo controls as [electricity lines businesses] will be unwilling to accept this level of uncertainty."

A delay of at least one year was now needed before any new regulations were introduced.

Vector, New Zealand's largest lines company, is also arguing for a pause to the commission's plans for regulation. It says that the profit threshold, which effectively capped returns, would "strip away any incentive to reduce costs, acquire scale, and develop new and improved services".

It says a similar method of self-regulation by Transpower, the state-owned enterprise that owns and manages the national grid, has been a failure.

"We note that Transpower operates currently to a self-imposed constraint on returns, similar to the proposed profit threshold.

"It appears to have contributed to significant under-investment in transmission and a lack of customer responsiveness, as the approach leaves Transpower little commercial incentive to pursue either.



"The excess profit threshold will result in de facto control being applied to all companies, is highly intrusive and will lead to detrimental outcomes."

The commission should "engage the industry on the development of a robust methodology for setting price and quality thresholds that obviate the need for a profit threshold."

Standing out among the chorus of disapproval is the submission of one of the biggest power retailers, Contact Energy.

Its submission says the commission should be aware of the potential for lines companies to shift costs on to retailers.

This is likely to infuriate many line companies, which say retailers such as Contact are under no obligation to pass on price reductions.

The Electricity Networks Association says there are many examples of lines companies cutting prices, only to find the retailers pocketing the cut, or even increasing prices to power users.

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