Commerce Commission releases Transpower decisions

Commerce Commission releases draft decisions on individual price-quality path for Transpower

The Commerce Commission has today released its draft decisions and reasons on the application of individual price-quality regulation to Transpower. It complements a paper published on Friday 25 June 2010, setting out the Commission’s draft decisions and reasons on the input methodologies to be applied to Transpower.

As the Commission has not yet received the Minister's decision in respect of the type of regulation that will be applied to Transpower (whether default/customised or individual price-quality regulation), the Commission has necessarily published its draft decisions on the basis of the Commission's recommendation to the Minister that individual price-quality regulation apply to Transpower.

The key draft decisions that the Commission has announced in relation to the implementation of individual price-quality regulation relating to Transpower include:
Transpower’s maximum allowable revenue for each year of each regulatory control period (RCP) will be calculated using a building blocks approach;
capital projects will be divided into Minor and Major categories. The level of approved Minor capital expenditure for the Year 1 of the RCP1 will be set at $225.6 million;
Major capital expenditure projects will be subject to individual approval, and substitution will not be allowed;
full substitution within the Minor project category will be allowed, including between years within a given regulatory control period, except the 2011/12 year, to which a number of transitional provisions apply;
the Commission will undertake full ex-ante reviews of Transpower's proposed operating expenditure and Minor capital expenditure prior to the start of each regulatory period. The reviews will be designed to approve a level of efficient expenditure for each year of the regulatory period, to be included in calculating its maximum llowable revenue, and against which compliance will be assessed;
the present high voltage alternating current (HVAC) economic value account balance of $108.8 million will be returned to customers by the end of RCP1;
the present high voltage direct current (HVDC) economic value account balance of $102.8 million will be recovered from customers by the end of RCP2;
Transpower will be subject to a penalty/reward scheme that applies to the quality standards set by the Commission beginning in RCP2; and
subject to the Electricity Industry Bill passing into law, a capital expenditure input methodology will be developed during 2011 to apply from 1 October 2011. In this situation, the individual price-quality determination and any affected input methodologies will be amended, as necessary, to reflect the capital expenditure input ethodology.

“These draft decisions, in conjunction with the input methodologies paper that was released last Friday, are a significant milestone. These allow the Commission to seek valuable feedback from the industry on our proposed regulatory framework to apply to Transpower. The Commission expects to receive the Minister’s decision on the tpe of regulation to apply to Transpower in the near future, and this, as well as feedback from the industry on these papers, will provide the platform for the Commission to make its final determinations, said Commerce Commission Chair Dr Mark Berry.

Submissions on the draft decisions are due by 6 August 2010.

The Individual Price-Quality (Transpower) Draft Reasons Paper can be found at www.comcom.govt.nz/developing-new-price-quality-regulation-to-apply-to-transpower/

The paper Input Methodologies (Transpower) Draft Reasons Paper can be found at www.comcom.govt.nz/input-methodologies/

Background
Transpower is currently regulated by the Commerce Commission under Part 4 of the Commerce Act by way of an administrative settlement entered into on 13 May 2008. The administrative settlement expires on 30 June 2011. The Commission must, under Part 4, determine a price-quality path that will apply to Transpower to take effect once the settlement expires.
The Commission released an update on the process to determine input methodologies for Transpower on 13 May 2010. The Commission anticipates making its final determinations in relation to Transpower, by 30 November 2010.

On 31 May 2010 the Commission released the first of its input methodologies draft reasons papers, relating to airport services.

On 18 June 2010 the Commission released the second of its input methodologies draft reasons papers, relating to electricity distribution businesses.

On 21 June 2010 the Commission released the third of its input methodologies draft reasons papers, relating to gas pipeline businesses.

On 25 June 2010 the Commission released the fourth of its input methodologies draft reasons papers, relating to electricity transmission businesses - Transpower.

ENDS

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