Pursuant to Part 4 of the Commerce Act 1986, the Commerce Commission (“Commission”) has set the individual price-quality path applicable to electricity lines services supplied by Transpower New Zealand Limited (“Transpower”) for the five year regulatory period from 1 April 2015 to 31 March 2020.

The individual price-quality path is set out in the Transpower Individual Price-Quality Path Determination 2015 [2014] NZCC 35 and applies to Transpower from 1 April 2015.

In setting Transpower’s individual price-quality path, the Commission used the input methodologies that apply to the supply of electricity lines services supplied by Transpower, as specified in:

• Transpower Input Methodologies Determination [2012] NZCC 17; and
• Transpower Capital Expenditure Input Methodology Determination [2012] NZCC 2

Summary

Prices

The individual price-quality path specifies the maximum revenues that may be recovered by Transpower in each pricing year of the regulatory period, net of pass-through costs and recoverable costs. The forecast maximum allowable revenue for each pricing year in the 2015–2020 regulatory period is:

• for the pricing year from 1 April 2015 to 31 March 2016: $881.6 million;
• for the pricing year from 1 April 2016 to 31 March 2017: $918.6 million;
• for the pricing year from 1 April 2017 to 31 March 2018: $951.8 million;
• for the pricing year from 1 April 2018 to 31 March 2019: $949.4 million; and
• for the pricing year from 1 April 2019 to 31 March 2020: $956.8 million.

Five large reconductoring projects have also been identified as listed projects for which Transpower may seek approval from the Commission to incur additional capital expenditure. If further capital expenditure is approved by the Commission and project assets are commissioned by Transpower, the cost of those assets may be recovered through additional revenues.

Transpower’s individual price-quality path is reconsidered in each year of the regulatory period (save the last) to take account of both the revenue impact of any additional capital expenditure approved by the Commission—for listed projects or major capex projects—and for identified (EV account) revenue adjustments.

Quality standards

The individual price-quality path specifies the quality standards that must be met by Transpower. Twenty-three quality standards (prescribed as targets) have been set. They specify:

• annual measures of grid performance (15) which focus on unplanned interruptions experienced by categories of points of service (high priority, important, standard, generator, N security) on Transpower’s network;
• annual asset performance measures (2) which focus on high voltage direct current energy availability, and the availability of selected high voltage alternating current circuits;
• annual asset health grid output measures (3) which focus on the refurbishment and replacement of transmission towers, grillages and insulators; and
• periodic asset health grid output measures (3) which focus on the refurbishment and replacement of outdoor circuit breakers, power transformers and outdoor-to-indoor substation conversions.

Incentives for Transpower to maintain or improve its quality of supply are included in the individual price-quality path through:

• rewards by way of an increase in Transpower’s maximum revenue based on whether, or by what amount, Transpower meets or exceeds the required quality standards; and
• penalties by way of a reduction in Transpower’s maximum revenues based on whether, or by what amount, Transpower fails to meet the required quality standards.

Compliance and information reporting

For the purpose of monitoring compliance with Transpower’s price-quality path, Transpower must provide the Commission each year with a pricing compliance statement and an annual compliance statement (and associated information).

Transpower’s individual price-quality path determination also requires Transpower to publicly disclose other information. The information disclosure requirements are included within the individual price-quality path determination (and are in addition to other reporting requirements in the Transpower Information Disclosure Determination 2014 [2014] NZCC 5) because they give effect to an operational feature of the price-quality path, or are linked to Transpower’s development plan for this regulatory period, rather than being enduring disclosures.

Further information

Copies of Transpower’s individual price-quality path determination are available:

• for inspection free of charge at the Commission’s head office at 44 The Terrace, Wellington (during ordinary office hours)
• on the Commission's website at
  www.comcom.govt.nz/regulated-industries/electricity/electricity-transmission/transpower-individual-price-quality-regulation/transpowers-price-quality-path-from-2015-to-2020/
• for purchase at a reasonable price at the Commission’s head office at 44 The Terrace, Wellington.

Copies of the reasons papers for Transpower’s individual price-quality path determination are also available on the Commission’s website at

www.comcom.govt.nz/regulated-industries/electricity/electricity-transmission/transpower-individual-price-quality-regulation/transpowers-price-quality-path-from-2015-to-2020/

Dated at Wellington this 28th day of November 2014.

COMMERCE COMMISSION.