The Commerce Commission (“Commission”) has amended the input methodologies applicable to electricity lines services supplied by Transpower New Zealand Limited (“Transpower”) under Part 4 of the Commerce Act 1986.

The amended input methodologies are:

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

The amendment is set out in the Transpower Input Methodologies Amendment Determination 2014 (No. 2) [2014] NZCC 34.

The Commission has created a “listed project” mechanism which allows Transpower to apply, within a regulatory period, for approval of additional capital expenditure (“capex”) relating to pre-identified large (ie forecast to cost more than $20 million) asset refurbishment or asset replacement projects. These projects should have at least one (or more) assets likely to be commissioned in the regulatory period, and must be projects for which a commencement date within the regulatory period is anticipated but cannot be forecast with specificity.

Reasons

The Commission has made this amendment so that, for listed large asset replacement and asset refurbishment projects, Transpower has increased timing flexibility to apply (within a regulatory period) for additional capex associated with those projects.

Transpower has previously indicated its view that large projects with high cost or timing uncertainty (such as large reconductoring projects) are a poor fit with the base capex framework. In the absence of a listed project mechanism, these projects would fall within the broader base capex portfolio, for which the Commission must set a base capex allowance in advance of each regulatory period. The processes contained within the Transpower Capital Expenditure Input Methodology Determination require Transpower to submit a base capex proposal 16 months prior to a regulatory period.

The listed project mechanism allows listed large asset replacement and asset refurbishment projects that are subject to uncertain timing to be separated from the base capex proposal and submitted for approval of additional capex within a regulatory period. Additional time allows Transpower to undertake more investigation, planning, and detailed design work so that a listed project commencement date can be predicted with more certainty, and more accurate cost estimation for that project is likely.

In the Commission’s view, once capex relating to a listed project is approved, further timing or cost estimation uncertainty can be accommodated within the base capex framework, noting the fungible nature of the base capex portfolio permits substitution by Transpower between projects and programmes.

Summary

The mechanism requires listed projects to meet certain requirements before the Commission can, at its discretion and before the start of a regulatory period, identify them as such in an individual price-quality path determination. Once listed, Transpower can apply to the Commission for approval of additional capex relating to a listed project.

When seeking approval of additional capex relating to a listed project, Transpower must meet certain requirements. These include specific information requirements, and a requirement for Transpower to consult (prior to seeking approval) with interested persons in accordance with Transpower’s own policies and processes, and at a scope commensurate with the project’s nature, complexity, impact and significance.

The processes for evaluating an application for approval of additional capex relating to a listed project are commensurate with those that would apply if the listed project was an identified programme submitted as part of Transpower’s base capex proposal prior to the regulatory period.

The criteria the Commission will use to evaluate an application for approval of additional capex relating to a listed project are the same as those which would apply if the listed project was an identified programme submitted as part of Transpower’s base capex proposal prior to the regulatory period.

The Commission will make and publish its decision on any application by Transpower for approval of additional capex relating to a listed project as soon as reasonably practicable.

The Commission will then take account of the revenue impact of any capex approved by the Commission for a listed project within a regulatory period when it reconsiders Transpower’s individual price-quality path, in each year (save the last), of that regulatory period.

Additional capex relating to a listed project that is approved by the Commission will be able to be substituted by Transpower between base capex projects within the overall envelope of approved base capex for the regulatory period, and subject to the base capex incentive framework in the Transpower Capital Expenditure Input Methodology Determination.

Further information

Copies of the amendment 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/input-methodologies-2/amendments-and-clarifications/
• for purchase at a reasonable price at the Commission’s head office at 44 The Terrace, Wellington.

Copies of the amendment determination reasons paper is also available on the Commission’s website.

Dated at Wellington this 27th day of November 2014.

COMMERCE COMMISSION.