Electricity lines companies told to cut prices

4.15pm

The Commerce Commission today imposed price and quality thresholds on electricity lines companies to limit their natural monopolies but it backed away from limiting profits.

The backdown on profit limits cheered lines companies that appear to have won changes from the commission's draft proposals which they claimed would inhibit innovation and investment.

The commission has forbidden the 29 network companies including national grid operator Transpower to lift prices until March 31 next year.

From April 1, 2004 (or July 1 in the case of Transpower), the companies will be permitted to raise prices, but the maximum increases will be based on the increase in the Consumer Price Index (CPI) less an amount yet to be determined by the Commission.

The pricing threshold will be developed over the next six months and reviewed by the Commission every five years.

The competition watchdog has set thresholds as a screening mechanism to identify lines businesses "whose performance may require further investigation and, if required, control by the commission", said chairman John Belgrave

It imposed a quality threshold, "requiring no material deterioration in system reliability, as well as demonstration of meaningful engagement with end consumers to ensure services are being provided at a quality that reflects consumer demands."

"The commission has decided to adopt a price path threshold and a quality threshold," said Mr Belgrave.

"The focus on price and quality will ensure that electricity lines businesses are limited in their ability to extract excessive profits, face strong incentives to improve efficiency, provide services at a quality that reflects consumer demands and share the benefits of efficiency gains with consumers, including through lower prices.

"This, in essence, is the purpose of the legislation."

The commission said after comprehensive consultation, it backed away from the profit limit set in its draft proposal because it "may not be the best means to achieve the purpose of the targeted control regime, as it could deter investment and innovation."

Lines companies have claimed their cost structures and lines charges were among the world's lowest.

The commission said it would release a paper detailing its threshold decisions as soon as possible.

- NZPA, HERALD STAFF