Transpower's maximum allowable revenues adjusted for the coming year

The Commerce Commission yesterday reduced Transpower’s maximum allowable revenue for the coming pricing year from 1 April 2014 to 31 March 2015 by $25.1 million, from $959.7 million to $934.6 million.

The reduction in the 2014/15 maximum allowable revenue has been made to account for the fact that Transpower over-recovered from customers in the 2012/13 year.  This over-recovery was caused by Transpower’s regulatory asset base being smaller than forecast and the later than expected commissioning, on average, of new assets. Consequently, an adjustment to the maximum allowable revenue for the following year, 2014/15, is required.

“The annual adjustment ensures Transpower’s maximum allowable revenue provides for an appropriate economic return over the regulatory period, from 2011 to 2015, and that Transpower does not over or under charge its customers.” said Commerce Commission Deputy Chair Sue Begg.

Although less than originally forecast, Transpower’s maximum allowable revenue of $934.6 million for the 2014/15 pricing year is a substantial increase from the 2013/14 amount of $874.3 million. This increase is primarily due to a large increase in Transpower’s asset base due to investment in the National Grid.

Background

Transpower is the sole owner and operator of the New Zealand national electricity transmission grid.

Since April 2011, Transpower has been regulated under Part 4 of the Commerce Act 1986 by way of individual price-quality path regulation. The individual price-quality path governs Transpower's allowed revenue for each pricing year, with the path being reset every five years.

Under individual price-quality path regulation, the Commission sets maximum allowable revenues for a regulatory control period. A regulatory control period lasts for four or five years. The current regulatory control period ends on 31 March 2015.

Transpower's maximum allowable revenues are based on capital and operating expenditure approved by the Commission prior to the start of the regulatory control period.

Each year the Commission calculates an adjustment to reflect revisions to forecasts of Transpower’s regulated asset base and ensure Transpower’s maximum allowable revenue provides for an appropriate economic return over the regulatory period.

The Commission will set Transpower’s individual price-quality path for the next regulatory control period by 30 November 2014.