1. Energy Regulation – NZCID Meeting Commerce Commission

2. Overview Our regulatory responsibilities What we are trying to achieve1
Our regulatory responsibilities
What we are trying to achieve
Progress in implementing Part 4 of Commerce Act
Focus over next year
Transpower regulation

3. Regulatory responsibilities2
Energy and airports (Part 4 of Commerce Act)
Default/customised price-quality paths EDBs, GDBs, GTBs
Individual price-quality path for Transpower
Information disclosure airports and energy businesses
Dairy (Dairy Industry Restructuring Act)
Adjudication
“Dry run” of farm gate milk price monitoring regime
Telecommunications

4. What we are trying to achieve3
Regulation is better targeted
Is regulation the right response (Part 4 inquiries)?
What is right form of regulation (airports review)?
Regulation is more effective
Our decisions promote statutory objectives
Suppliers act consistently with regulatory obligations
Information disclosure – summary and analysis
Stakeholder engagement

5. Part 4: Good progress 4 Price-Quality Paths Information Disclosure
Input Methodologies (IMs)
Default price-quality path for electricity distribution businesses (Nov 2009)
Determination for specified airport services (Dec 2010)
Determinations for all regulated services (Dec 2010)
Individual price-quality path for Transpower (December 2010), updated path in 2011
Draft determinations for gas pipeline services and electricity distribution services (Jan 2012)
Capex IM for Transpower (Jan 2012)
Draft additional IMs for gas and electricity services (June 2012)

6. Part 4: Input methodologies5
Set input methodologies upfront – to promote certainty
IMs are methodologies set by the Commission
WACC, value of regulatory asset base
Allocation of costs, treatment of tax, CPP, processes
Transpower capital expenditure
Must be applied in the Commission’s decisions and by suppliers
Subject to merits review (Court considers alternative proposals)
Won’t fully promote certainty until merits review completed

7. Part 4: Litigation has caused delays6
Delays caused by two judicial reviews
Price reset input methodology challenge and process challenge
Delayed EDB and gas price resets and merits reviews (by one year)
Merits reviews September – December this year
Merits reviews of input methodologies (expected)
Both regulated businesses and consumers appealing (nine parties)

8. Part 4: Focus for 2012/13 7 TASK TIMING
Merits reviews of Input Methodologies
Till end of December
Set additional Input Methodologies
30 September 2012
Reset starting prices for EDBs if appropriate
30 November 2012
Information Disclosure requirements for EDBs, GPBs and Transpower
August 2012 (EDBs and GPBs) January 2013 (Transpower)
Set gas distribution and gas transmission DPP
No later than October 2013
Review information disclosure for airports
Three reports, starting with WIAL
Approach to compliance and enforcement
June 2012
Customised price-quality paths
As required (Orion?)
Evaluating Transpower capital expenditure proposals
As required
Summary and analysis of EDB performance
Ongoing
Engagement programme for Part 4

9. Transpower capex input methodology8
Single regulator with overview of all capex
Change supported by NZCID – is working well
Input methodology for Transpower’s capex
No merits review
IM spells out rules, processes, criteria for all capex
Capex classified as base or major capex
Incentive regime applies to both base and major capex
Transpower must publish integrated transmission plan

10. Transpower major capex9
Major capex process
Built on previous Electricity Commission processes
Approved on project-by-project basis
Stakeholder consultation important
Transpower applies investment test (cost benefit analysis)
Transpower propose, we approve or decline
Raised the threshold for “major”: $5m then $20m
Major capex proposals in train - $550 million

11. Transpower base capex 10
Base capex approved and set ex ante for five years
Amount subject to ex ante approval will increase with higher major capex thresholds
No ex post review of prudency
Substitution within base capex allowed – but generally amount cannot be amended over regulatory period
Transpower’s business improvement initiatives
Safety performance, asset management improvements, long term network performance outputs (quality, grid health etc)

12. Conclusion 11
Substantial progress on Part 4 despite delays caused by litigation
Reset of price paths and finalisation of information disclosure major tasks remaining
Resolution of merits reviews this year?
Over time promote certainty – positive for investment

13. EMAIL: sue.begg@comcom.govt.nz12
NAME: Sue Begg
TITLE: Deputy Chair
TELEPHONE:
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