Commerce Commission plans to tighten rules on electricity, gas companies passing costs to consumers

The regulator said volume and value of party transactions involving electricity businesses is growing. Photo / 123RF

The Commerce Commission is looking at tightening rules for electricity and gas pipeline companies using related parties to carry out work rather than independent contractors, with concerns that the cost is being passed on to consumers.

In a draft decision released today, the regulator said the volume and value of related party transactions involving electricity lines businesses is growing, and it wants to avoid customers being harmed.

In 2016, 11 of the country's 29 electricity companies spent more than 65 percent of their operating or capital expenditure on services from related parties, with that number dominated by companies in the South Island such as Westpower, the Power Company and Aurora Energy.

In the North Island, The Lines Company which operates networks on the west coast, Horizon Energy in the eastern Bay of Plenty and Northpower all spent 65 percent or more with their related businesses.

"While the Commission seeks to limit the ability of regulated businesses to make excessive profits, it cannot regulate the profits made by their related businesses. As a result, regulated businesses may be incentivised to give work to their related parties, even if an independent contractor could offer a better price or service," deputy chair Sue Begg said.

"We are concerned that this behaviour may result in customers paying more than they should for their electricity and gas."

The regulator can't require the companies to competitively tender work out, but proposed rule changes would mean the businesses would have to demonstrate how cost-effective their related party arrangements were, with independent auditors also testing the arrangements.

Lines and pipeline businesses who use related parties would also need to disclose their procurement policies and processes, and their directors would have to certify they had been used; and companies who spent 65 percent or more of their costs on a related party would have to release an independent report about whether their deals were competitive.

The Commerce Commission is now asking for feedback on whether its proposed changes go far enough. Submissions on that close on Sept. 27, with cross-submissions closing on Oct.4, and it plans to publish a final decision in December.