Commission explains Transpower regulation proposal

The form of regulatory oversight being proposed by the Commerce Commission for Transpower is not dissimilar to that provided under an administrative settlement that expires in mid-2011.

A draft reasons paper for the commission's Transpower proposal published today said that under the proposed regulation Transpower would remain subject to a cap on revenue.

But, instead of applying to a one-year period, the cap would first apply to an initial four-year control period, followed by five-year periods.

Transpower would remain subject to reviews of its operating and capital spending plans, performance against quality standards, and would retain a similar economic value framework, the draft paper said.

The capital spending approach being proposed could be subject to change if the Electricity Industry Bill (2009) was enacted.

The commission would carry out reviews of Transpower's proposed operating expenditure, and minor capital expenditure before the start of each regulatory period, the paper said.

The reviews would be designed to approve a level of efficient spending for each year of the regulatory period, to be included in calculating its maximum allowable revenue, and against which compliance would be assessed.

Quality performance targets would be based on the frequency of loss of supply events, transmission circuit availability, and the total duration of interruptions.

The operating spending allowance applying to the transition year -- 2011/12 -- of the new regulations would be $231.67 million, excluding pass-through and recoverable costs.

The level of approved minor capital spending for the transitional year would be $225.6m. Major capital spending projects would be individually approved.

The overall purpose was to promote the long term benefit of consumers in markets with little or no competition and little or no likelihood of a substantial rise in competition.

A regulatory framework would do that by providing incentives to invest, by allowing Transpower to fully recover and earn an appropriate return on its investments, and by providing a penalty and reward framework around quality standards, the paper said.

There were also incentives for Transpower to become more efficient in its operating expenditure, and in the long term in its capital spending, along with requirements for Transpower to share efficiency gains with consumers.

Submissions on the draft paper are due by August 6, with the commission hoping to make a final determination no later than November 30.