Ring-Fencing Code
A key
aspect of the Power and Water 's licence conditions is
the requirement that certain business units be
"ring-fenced" to ensure that Power and Water does not
use its dominant market position in an anti-competitive
manner.
In other jurisdictions, the
electricity industry has undergone structural reform which has reduced the
likelihood that monopoly activities could be used to subsidise contestable
activities. The Territory Government’s decision to maintain Power and Water as a
vertically integrated business has considerably increased the need for effective
ring-fencing.
The objective of the
Ring-fencing Code is to create an environment where the price, quantity and
quality of electricity sold to end-use consumers—be they contestable or
non-contestable customers—are not biased as a result of Power and Water's
vertical integration, irrespective of the degree of integration. The Code aims
at ensuring that monopoly businesses in regulated industries affiliated to
contestable businesses do not discriminate against a competitor of that
affiliated business, or financially or competitively advantage that affiliated
business to the detriment of a competitor of that affiliated business.
2008 Review of Ring-fencing
Code
In February 2008, the
Commission published a consultation paper “Review of the NT Electricity
Ring-fencing Code: Proposed Variations” proposing a comprehensive revamping of
the Northern Territory Electricity Ring-fencing Code. This possibility was first
foreshadowed in the “Possible Review of Certain Regulatory Instruments” Issues
Paper published by the Commission in August 2007 and confirmed in the
Commission’s Response Paper published in January 2008.
Following consideration of
submissions from interested parties and its own further deliberations in
consultation with its legal advisers, the Commission has decided to proceed with
the proposed variations to the Code, although with some modification to the
specific drafting detail set out in the earlier Consultation Paper, mainly in
response to submissions received. The Commission released its "Proposed Draft
Code" in May 2008.
In August 2008 following
receipt of submissions on the May Draft, given that significant matters have
been raised, the Commission decided to release a further draft for comment
rather than going straight to a final decision.
The Commission has now
finalised revisions to the NT Electricity Ring-fencing Code to take effect from
1 January 2009.
August Revised Draft
Code Paper
The Commission released
its “Revised Draft Code” in August 2008.
Two submissions were
received:
May Draft
Code Paper
The Commission released
its “Proposed Draft Code” in May 2008.
A single submission was
received from Power and Water:
In view of the substantive
matters raised by Power and Water, it is the Commission’s intention is to
release a further draft for comment in mid-October 2008.
Proposed variations paper
Submissions were received from
two interested parties:
Ring-Fencing Procedures:
Clause 5 of the Code requires
the Commission to approve accounting, cost allocation and information procedures
as submitted by Power and Water. These procedures have been developed by Power
and Water in conjunction with the Commission and approval was based on
information submitted to the Commission by the Corporation during on-going
discussions.
Compliance with Ring-Fencing
Procedures:
Under the Ring-fencing Code,
Power and Water is obliged to establish and maintain a separate set of financial
accounts and reports in respect of each of its prescribed businesses and its
electricity business as a whole ("Regulatory Accounts")
The Regulatory Accounts are
submitted to the Commission annually which are assessed for compliance with
Ring-fencing Code and the related Accounting and Cost Allocation Procedures in
so far as they relate to the preparation and disclosure of financial accounts
for ring-fencing purposes.
The publicly available extracts
of the Regulatory Accounts are available below.
In light of additional
information received in the context of Power and Water’s annual network
tariff submissions, the Commission is no longer satisfied that revenue
aspects of the Regulatory Accounts for 2004-05 and 2005-06 meet the
necessary requirements, namely clause 2.1(d) of Schedule 2 of the
Ring-fencing Code which requires that “the resultant financial
information satisfies the concepts of relevance and reliability, thereby
ensuring that the substance of the underlying transactions and events is
reported.”
Cost
Allocation
In September 2005, the
Commission commenced a review of the cost allocation
policies and practices of Power and Water.
A summary of the
Commission's conclusions is available below:
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