Electricity Consumers Get A Better Deal

Enterprise and Commerce Minister Max Bradford today announced new and innovative measures for ensuring electricity lines businesses reduce prices for consumers while maintaining a secure supply.

The measures involve the Commerce Commission having the power to impose price control on poorly performing lines businesses using a formula comparing prices, profits and security of supply, Mr Bradford said. The industry will be consulted before the measures are finalised.

"The Government's electricity reforms have already resulted in falling retail prices for householders and business, and following yesterday's announcement that the three-way split of ECNZ will proceed, at least another 10 percent drop is expected in wholesale prices," Mr Bradford said.

"It is important that the lines side of the industry (the poles and wires businesses) doesn't take advantage of its natural monopoly status and lack of incentive to improve performance and reduce prices."

Mr Bradford said the Government's electricity reform package, as announced in April this year, requires ownership separation of lines and retail businesses to encourage competition in retailing. It also flagged that the Government is serious about implementing price control on lines companies if they don't reduce costs and prices.

"I have been particularly concerned at the very high prices paid recently for electricity businesses and the scope this provides for increased prices for consumers," Mr Bradford said.

"I am also concerned that we have too many small, high cost lines businesses, some serving only a few thousand customers.

"Accordingly, the Government intends to introduce new measures to put lines businesses under appropriate forms of pressure to improve their performance just as the competitive parts of the industry face," Mr Bradford said.

"At present, the Government has the power to request the Commission to impose price control or to undertake an inquiry on whether price control should be introduced. However, I am aware that some lines businesses think that the Government would not in practice be prepared to use this power."

The Commission will be able to undertake price control inquiries and impose price control where it concludes that competition is limited and price control would be in the interests of consumers.

In addition, the Government has decided in principle to set performance thresholds for lines businesses.

"This involves comparing the performance of all lines businesses over time in terms of prices, profits, and security of supply. Individual lines businesses which are consistently poor performers may be price controlled," Mr Bradford said.

"This regime is designed to replicate the effects of competition which puts continual pressure on businesses to look after their customers and keep improving their performance."

A discussion paper on the proposals was released today for public submissions by 5 February 1999. Implementing these decisions will require legislative amendments, which are scheduled for next year.

Further information is available on the Internet: www.moc.govt.nz