New pricing limits for 16 electricity distribution businesses

The Commerce Commission has today released its final decision to reset the default price-quality paths for 16 electricity distributors. Two of the distributors will have to reduce their prices, while the remainder will be able to increase their prices if they choose. The new price limits will take effect from 1 April 2013.

"The price limits on electricity distributors have been changed to better align their revenues with their costs. We aim to create an appropriate balance between providing incentives for these businesses to invest in their networks, while ensuring that consumers are being charged based on the cost of services provided in each region," said Sue Begg, Deputy Chair of the Commerce Commission.

Individual adjustments for electricity distributors on 1 April 2013 vary in size, from a reduction of 10% to an increase of 10% before inflation.

"In those regions where we have determined that there needs to be a larger price increase to support network investment, we have smoothed the increases over a number of years. This has helped to avoid more significant price increases in 2013," says Ms Begg. Today’s announcement has been able to proceed due to a recent Supreme Court decision. (See background)

The final limits on the total revenue that distributors will be allowed to earn are similar to those set out in the Commission’s draft decision. Changes to the price adjustments since the draft decision are mainly presentational. They result for the most part as a result of receiving better information on the prices that each supplier would have charged if there was no reset. This provides the comparison for the path reset.

"The price reset will eventually flow through to consumers, as either a price increase or decrease on their power bills depending on where they live. The Commission does not set how the distribution price is passed through. Businesses are free to decide how to spread the prices across their customer base, or indeed, in the case of increases may decide not to take up the full amount of the allowable increase," said Ms Begg.

Distribution charges make up about a third of a customer’s bill. Example calculations of the changes consumers might experience in their electricity bill are attached. The extent of any price changes will depend on how retailers decide to pass on the price increases or decreases to their customers.

If the prices do not suit an electricity distributor's particular circumstances, they can apply to the Commission for a customised price-quality path.

The Commission has not reset the default price-quality path for Orion New Zealand Limited, the Christchurch based electricity distribution business. Orion is currently assessing whether to apply for a customised price-quality path to deal with rebuild issues associated with the earthquakes. If Orion chooses not to apply for a customised path by early 2013, the Commission will review whether Orion's default price-quality path should be reset.

You can read the final decision at www.comcom.govt.nz/2010-2015-default-price-quality-path