5 Aug 2017

Commerce Commission accused of falling short over PowerCo

12:24 pm on 5 August 2017

The Commerce Commission is going soft on electric lines companies, according to the Major Electricity Users Group.

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Photo: 123rf.com

This body represents large scale buyers of electricity like New Zealand Steel, Pacific Aluminium and Fonterra, and keeps a close watch on electric lines companies which get paid about $2 billion a year from consumers.

These companies - 27 local networks and Transpower - are natural monopolies and so cannot be constrained by market forces.

As a result, the Commerce Commission watches everything they do.

But the major users said the commission was falling short over its latest case, an application by PowerCo to raise its prices.

PowerCo is New Zealand's second biggest lines company, and covers Taranaki, the Bay of Plenty and elsewhere.

It wants to raise its prices to pay for $1.4bn of technical improvements to its ageing network of wires, poles and transformers.

The need for these improvements was highlighted in a recent report by PowerCo to the Commerce Commission itself.

But the major users said recent comments showed the commission was trying to encourage PowerCo, rather than acting as a neutral referee.

They accused the commission of trying to make it easy for PowerCo in order to improve confidence in the process for future applicants.

"Such comments are concerning and at odds with the commission's statutory objective, which is to achieve the best possible outcomes in competitive and regulated markets," the major users' chairman John Harbord said.

"Applications should be rigourously assessed on their merits. Instead, the commission has created an impression there could be a degree of pre-determination on the part of a commission keen to show that a process it has designed works - and works fast."

Mr Harbord even went so far as to accuse the commission of offering PowerCo a 'get-out-of-jail-free card', instead of proving its pricing and investment policies were sound.

The major users said at the heart of this dispute was the concern that lines companies might under-invest in their assets and thus make greater profits than they otherwise would.

Then, when an investment catch-up was needed, lines companies could apply for higher prices to pay for the delayed work.

They said this did not apply to PowerCo but the application could easily set the wrong precedent.

The Commerce Commission was not available for a response.

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