Setting Transpower’s price-quality path

Issued 25 October 2018
Release No. 60

Commission seeks early views on proposed approach for setting Transpower’s price-quality path

The Commerce Commission is seeking early views on its proposed process, framework and approach for setting national grid operator Transpower’s next price-quality path.

Transpower’s price-quality path sets the total amount of money it can collect from its customers and the minimum standards of quality it must deliver in return. Its next reset covers the five-year period from 2020 to 2025.

Deputy Chair Sue Begg said the Commission wanted Transpower’s customers to help shape its proposed approach to evaluating Transpower’s proposals on expenditure and quality.

“To operate the national grid Transpower collects almost $1 billion a year from its customers, who pass these costs on to New Zealand consumers and businesses. It’s important all stakeholders have a chance to be heard and help us shape our approach as we begin this process,” Ms Begg said.

“We particularly want to hear from gentailers, lines companies, major electricity users and consumer groups on the approach we intend to take in assessing Transpower’s proposals on expenditure and quality. We also want their views on our longer-term vision to encourage Transpower to improve on its asset management and customer engagement practices over time.”

For the first time, Transpower has used an independent verifier to scrutinise key components of its proposal.

Transpower’s formal proposal is required to be submitted to the Commission in December, accompanied by the independent verifier’s report.

Further information on the Commission’s process paper, including submission timeframes, can be found on its website.

Background

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

The Electricity Authority estimates that transmission charges make up about 10% of a typical household electricity bill.

Input methodologies
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.

Individual price-quality path
As a regulated business under Part 4, Transpower is subject to an individual price-quality path (IPP) that sets the total amount of money it can collect from its customers, and the minimum standards of quality it must deliver in return.

Regulation of natural monopolies
Price-quality regulation is designed to achieve similar outcomes to competitive markets so that consumers benefit in the long term. This includes making sure that monopoly suppliers are limited in their ability to earn excessive profits and have incentives to innovate and invest in their infrastructure and deliver services at a quality their consumers’ expect.

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