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Notice Type
Authorities/Other Agencies of State
Notice Title

Notification of Transpower’s Individual Price-Quality Path That Applies From 1 April 2020 to 31 March 2025

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 2020 to 31 March 2025 (“RCP3”).

The individual price-quality path is set out in the Transpower Individual Price-Quality Path Determination 2020 [2019] NZCC 19 and applies to Transpower from 1 April 2020.

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 2010 [2012] NZCC 17, as amended as at 13 November 2019; and
  • Transpower Capital Expenditure Input Methodology Determination 2012 [2012] NZCC 2, as amended as at 13 November 2019.

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, which includes pass-through costs and recoverable costs. Under the individual price-quality path, Transpower’s forecast maximum allowable revenue for each year of the regulatory period has been calculated and smoothed over the five year regulatory period – this is known as the forecast ‘smoothed maximum allowable revenue’.

The forecast smoothed maximum allowable revenue for each pricing year in the 2020–25 regulatory period is:

  • for the pricing year from 1 April 2020 to 31 March 2021: $788.7 million;
  • for the pricing year from 1 April 2021 to 31 March 2022: $798.8 million;
  • for the pricing year from 1 April 2022 to 31 March 2023: $809.0 million;
  • for the pricing year from 1 April 2023 to 31 March 2024: $819.0 million; and
  • for the pricing year from 1 April 2024 to 31 March 2025: $829.3 million.

Transpower may seek approval from the Commission to incur additional capital expenditure that is not included within the individual price-quality path, through the enhancement and development projects, major capex projects and listed projects mechanisms. 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 may apply to the Commission to reopen its individual price-quality path where there is a large build up in Transpower’s “Economic Value (EV) account” that needs to be either recovered from or returned to customers. The EV account is a memorandum account maintained by Transpower on an after-tax basis to record each EV account entry not yet returned to or recovered from Transpower’s customers through Transpower’s allowable revenue. Because EV account entries are recorded in the EV account on an ex-post basis, there is a delay in Transpower being able to recover or return the amount to customers through its price-setting under the transmission pricing methodology or “TPM”. If the EV account balance exceeds a specified amount, the IPP may be reopened to spread some of the EV account balance over the remaining years of RCP3 and the forecast number of years in Transpower’s next regulatory period (ie, the regulatory period commencing 1 April 2025). This spreading of the EV account balance over a greater number of years will result in revenue smoothing for Transpower and reduce the degree of price shock for consumers.

Quality standards

The individual price-quality path specifies the quality standards that must be met by Transpower. They specify:

  • measures of grid performance which focus on the number and duration of unplanned interruptions experienced by categories of points of service (ie, N-1 security high economic consequence, N-1 security material economic consequence, and N security generator) on Transpower’s network;
  • asset performance measures which focus on energy availability of Transpower’s high voltage direct current circuits, and the availability of selected high voltage alternating current assets; and
  • asset health measures which focus on the refurbishment and replacement of power transformers and insulators.

The individual price-quality path introduces a normalisation mechanism that allows Transpower to apply to the Commission to exclude the effects of extreme weather events (or similar events that are beyond the reasonable control of Transpower) from the quality standards for measures of grid performance and asset performance measures.

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

  • increases in Transpower’s maximum revenue that reflect whether, or by what amount, Transpower meets or exceeds the required quality standards; and
  • reductions in Transpower’s maximum revenues that reflect 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, as amended).

Further information

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

Copies of the Decisions and reasons paper dated 29 August 2019 and the Companion paper dated 14 November 2019 for Transpower’s individual price-quality path determination are also available on the Commission’s website at:

Dated at Wellington this 14th day of November 2019.

COMMERCE COMMISSION.