Commerce Commission releases draft capital expenditure input methodology for Transpower

The Commerce Commission has released its draft determination and reasons paper on an input
methodology for approving Transpower New Zealand Limited’s capital expenditure proposals.

“The input methodology provides an approval process for investments in the national grid. This is
important because Transpower anticipates capital expenditure of up to $3billion over the next five
years,” said Sue Begg, Deputy Chair of the Commission.

Input methodologies promote certainty for the suppliers of regulated services about the effect of
regulation on them. Increased regulatory certainty is important for fostering efficient investment.

The Commission must publish its final determination and reasons paper before 1 February 2012.

Submissions are due by 12 August 2011. Cross-submissions will be due by 26 August 2011.

You can view the draft determination and reasons paper on the Commission’s website:
www.comcom.govt.nz/electricity-transmission-2

Background

Transpower is subject to individual price-quality regulation under Part 4 of the Commerce Act 1986. 

Part 4 regulates suppliers of electricity lines services, including Transpower New Zealand Limited,
gas pipeline services and specified airport services supplied by Auckland, Wellington and
Christchurch airports.

Input methodologies involve setting upfront regulatory rules, processes and requirements that
apply to the regulatory instruments under Part 4.

The Commerce Commission took over responsibility for approving Transpower’s grid upgrade plan
proposals from the Electricity Commission on 1 November 2010.

The Commission set Transpower’s individual price-quality path in December 2010. However, the
Commission has until 1 February 2012 to determine an input methodology for approving capital
expenditure. This input methodology must include:

• requirements that must be met by Transpower, including the scope and specificity of the information required, the extent of independent verification and audit, and the extent of consultation and agreement with consumers; and 
• the criteria the Commission will use to evaluate capital expenditure proposals; and
• time frames and processes for evaluating capital expenditure proposals, including what happens if the Commission does not comply with those time frames.