North Island Grid Upgrade Project paper published

Commerce Commission publishes North Island Grid Upgrade Project paper

The Commerce Commission is seeking views on Transpower’s application to amend the allowance approved for the North Island Grid Upgrade Project (NIGU Project).

Transpower has applied for the allowance to be increased from $824 million to $894 million. However, in its application Transpower states that it intends to recover $876 million of expenditure, $18 million less than the allowance applied for.

In today’s paper the Commission outlines the areas it proposes to focus its analysis on. The Commission considers these are the areas where Transpower may have incurred avoidable costs during the planning and delivery of the NIGU Project.

The Commission also outlines its proposed approach for determining an appropriate allowance for the NIGU Project.

If the allowance is not increased to the proposed level, Transpower will incur a reduction in its future allowable revenues. This would mean that expenditure over the allowance could not be recovered from consumers.

Those interested in making a submission should read the paper, the questions posed in the paper and Transpower’s application. Submissions are due by 17 January 2014. There will then be a period for cross-submissions. These will be due on 31 January 2014.

The Commission is aiming to reach a draft decision by 14 April 2014. The issues paper, Transpower’s application and further details are available on the NIGU Project webpage.

Background
The NIGU Project is a large electricity transmission infrastructure project undertaken by Transpower to increase the supply of electricity to the upper North Island. The project involved the construction of transmission a line from Whakamaru, in central North Island to Pakuranga in South Auckland, a distance of 196km.

The NIGU Project was approved by the former Electricity Commission in 2007 with the project being completed on in October 2012. The Electricity Commission set an allowance for the NIGU Project of $824 million. The Commerce Commission has since taken over the responsibility for overseeing Transpower’s capital expenditure.

The cost of the NIGU Project has exceeded the allowance, and consequently Transpower has applied to the Commission to increase the allowance to $894 million. Transpower, however, seeks to recover a smaller amount of $876 million from consumers. Transpower submitted this application in September 2013.

In addition to the $894 million of expenditure, Transpower incurred additional costs that are not recoverable under the regulatory framework. These relate to the loss in value of freehold properties acquired by Transpower amounting to $51 million.

Once the Commission makes a decision on an amended allowance, revenue adjustments may be made. Any revenue adjustment will be to ensure expenditure over the amended allowance is not recovered from consumers.

The rules, processes and requirements which apply to the allowance amendment process are set out in the Transpower Capital Expenditure Input Methodology Determination.

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