The Commerce Commission ("Commission") has amended the input methodologies applicable to electricity lines services supplied by Transpower under Part 4 of the Commerce Act 1986.
The amended input methodologies are:
- Transpower Input Methodologies Determination [2012] NZCC 17
- Transpower Capital Expenditure Input Methodology Determination [2012] NZCC 2
The amendment is set out in the Transpower Input Methodologies Amendments Determination 2014 [2014] NZCC 22, and will apply to the determination of Transpower's individual price-quality path.
In summary, our decisions are:
Specified asset lives-we have removed the requirement to spread depreciation for "end-of-life" assets across a regulatory period from the asset valuation input methodology. We have made this amendment because it will reduce Transpower's compliance costs by aligning regulatory treatment with generally accepted accounting practice, and will not detract from investment incentives given the application of the Transpower Capital Expenditure Input Methodology Determination.
Definition of "commissioned"-we have clarified that land which is base capex under the Transpower Capital Expenditure Input Methodology Determination may enter the regulatory asset base upon acquisition. This amendment will reduce uncertainty by removing ambiguity about the appropriate treatment of land intended to be used to provide electricity transmission services, but which is purchased prior to use. The framework introduced by the Transpower Capital Expenditure Input Methodology Determination will provide adequate incentives for prudent acquisition of low-cost land acquired for strategic purposes.
Reconsideration of the individual price-quality path-we have amended the reconsideration of an individual price-quality path input methodology to reflect changes to terminology resulting from the Transpower Capital Expenditure Input Methodology Determination. These amendments will allow reconsideration of the revenue-linked grid output measures following a catastrophic event, error or change event. We have made this amendment to ensure consistency with the quality standards terminology
used in the Transpower Capital Expenditure Input Methodology Determination.
Recoverable costs-we have amended the specification of price input methodology to allow expenditure, classified as opex under generally accepted accounting practice, to be treated as recoverable costs if originally forecast as approved major capex. We have made this amendment to preserve the neutrality of efficiency incentives irrespective of the accounting treatment ultimately adopted for expenditure incurred in major capex projects approved under the Transpower Capital Expenditure Input Methodology Determination. We have also allowed for the recovery of prudent additional net opex incurred as the result of a catastrophic event. We have made this amendment because there is currently no allowance for the additional costs incurred in responding to a catastrophic event, which may undermine incentives to respond efficiently and appropriately.
Definition of "forecast CPI"-we have updated the methodology for forecasting CPI with reference to
the Reserve Bank's policy target for inflation. This amendment aligns with similar amendments to the input methodologies application to other regulated energy sectors for the purposes of setting capex allowances.
We have made this amendment because it is a better indicator of inflation.
Definition of "related party"-we have updated the definition of related party to exclude parties that are related to Transpower by virtue of Crown ownership. We have made this amendment because it reduces compliance costs for Transpower by excluding parties that are related solely as a result of Transpower being a Crown-owned entity, while preserving the policy intent of the input methodologies that exclude certain related party transactions or arrangements.
Calculation of depreciation-we have amended the asset valuation input methodology to allow for part-year depreciation for newly-commissioned assets, and a transitional adjustment to align Transpower's regulatory asset base values with its asset values calculated under generally accepted accounting practice as at 1 July 2015, and established a depreciable pseudo-asset to preserve net present value neutrality. We have made this amendment as it will reduce Transpower's compliance costs by aligning regulatory treatment with generally accepted accounting practice on a net present value-neutral basis.
Copies of the amendment determination and reasons paper are available on the Commission's website at
www.comcom.govt.nz/amendments-and-clarifications/
Dated at Wellington this 28th day of August 2014.
COMMERCE COMMISSION.