Transpower’s investment in national grid

15 November 2017

Draft decision on review of rules for Transpower’s investment in national grid

The Commerce Commission has today released its draft decision on its review of the rules relating to Transpower’s capital expenditure.

As a monopoly, Transpower is subject to price-quality path regulation. It must seek the Commission’s approval for its capital expenditure before it can recover the cost of its investments from consumers.

Commission Deputy Chair Sue Begg said the draft decision on the Capital Expenditure Input Methodology (Capex IM) proposes a small number of substantive changes, as well as some minor changes to simplify the rules.

“Our draft changes are intended to provide better incentives for Transpower to undertake the right investments, in the right place, at the right time, ”Ms Begg said.

“We’ve also proposed a more flexible process that would allow Transpower to seek approval to undertake the initial stages of a major transmission project, such as acquiring access to land for the project. Transpower would then seek approval for the later stages of the project once the need, timing, and cost of the project become more certain.”

“These draft changes are intended to drive benefits for consumers over the longer term.”

“Reviewing these upfront rules is a significant undertaking and we recognise the importance of maintaining rules that are stable and provide appropriate incentives for Transpower to invest efficiently in long-life infrastructure. We have worked closely with our stakeholders throughout this process and would like to thank them for their valuable contributions to date.”

The draft decision can be found on our website.

Submissions on the draft decision paper close at 5pm on 8 December 2017. Cross-submissions close at5pm on 21 December 2017.

We will publish our draft determination by 22 November 2017, which will show how we propose to give effect to our proposed changes. We invite submissions on the draft determination by 5pm on 21 December 2017. We are not intending to invite cross-submissions on the determination in order to allow for an extended period for submissions.

Submissions can be made in email to regulation.branch@comcom.govt.nz

A final decision on the Capex IM review is expected to be released by the end of March 2018.

Background
Transpower
Transpower is a State-Owned Enterprise that owns and operates the national high voltage electricity transmission network. As system operator, it also manages the real-time coordination of the electricity market. As a monopoly supplier, the revenue it earns and the quality standards it must meet are regulated under Part 4 of the Commerce Act.

What is the Capex IM?
The rules relating to Transpower’s capital expenditure are set out in the Transpower Capital Expenditure Input Methodology (Capex IM) Determination. The Capex IM requires Transpower to seek the Commission’s approval of its capital expenditure proposals before recovering the cost of its investments from consumers. The Capex IM was set in 2012 and must be reviewed within seven years of being determined.

What are Input Methodologies (IMs)?
Input Methodologies are the upfront rules, requirements, and processes that apply to utility regulation in New Zealand. The IMs are an input and only one part of the regulatory regime, with benefits delivered to consumers through the application of the IMs to price-quality regulation and/or information disclosure regulation. The influence of the Capex IM review on the price and quality of service consumers receive will not be seen until the next price path comes into effect on 1 April 2020.

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