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Final individual price quality path for Transpower determine

Final individual price quality path for Transpower determined

The Commerce Commission today released the final individual price-quality path determination for electricity lines services supplied by Transpower.

The individual price-quality determination sets out the approach for calculating Transpower’s annual revenues, and operates in conjunction with the applicable input methodology determinations, also released today.

For the year to 31 March 2012 the determination provides a cap of $644 million on the revenue Transpower can earn. All capital expenditure proposed by Transpower is now subject to regulatory approval from the Commerce Commission. The determination also includes requirements for Transpower to report against certain quality measures, targets and standards in relation to the electricity lines services it provides.

The Commission is also required under the Commerce Act to develop by 1 November 2011 a new input methodology for assessing Transpower’s capital expenditure proposals. This new input methodology will set out the treatment for the different types of capital expenditure in the future. Until then, the current approval processes, as set out in the individual price-quality determination, will continue to apply. The first discussion paper for that input methodology will be released on 24 December 2010. The Commission is seeking feedback by Friday 18 February 2011. The overall regulatory framework under Part 4 of the Commerce Act includes the individual price-quality path, input methodologies for Transpower and the existing information disclosure requirements.

“ The objectives of this framework are to provide Transpower with incentives to innovate and invest, improve efficiency and provide services at a quality that reflects consumer demands, share efficiency gains with consumers, including through lower prices, and limit Transpower’s ability to extract excessive profits. The package that has been developed promotes these objectives, and is a good outcome for consumers,” said Dr Mark Berry, Commerce Commission Chair.

The determination and discussion paper are on the Commission’s website at Background Transpower is currently regulated by the Commerce Commission under Part 4 of the Commerce Act 1986 (the Act) by way of an administrative settlement entered into on 13 May 2008 with the Commission in respect of breaches of the thresholds under Part 4A of the Act. The administrative settlement regulates Transpower’s revenues until 30 June 2011 (in respect of the pricing year to 31 March 2011). Under Part 4 of the Act the Commission is required to determine a price-quality path that will apply to Transpower to take effect once the settlement expires.

Draft decisions in respect of the individual price-quality path for Transpower were released for consultation in June 2010. Since then, the Commission:

on 26 August 2010, released an update on the process to determine the individual price-quality path for Transpower;

on 9 November 2010, released its draft individual price-quality path determination, as well as a consultation update paper that set out changes in position from the June 2010 draft decisions; and

on 26 November 2010, announced the revenue cap of $644 million that will apply to Transpower for the period 1 April 2011 to 31 March 2012.


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