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Electricity Lines Businesses:

Electricity Lines Businesses: Commission releases Issues Paper for new ODV handbook

The Commerce Commission is inviting submissions on an Issues Paper that relates to the development of a handbook for the valuation of system fixed assets owned by electricity lines businesses using the Optimised Deprival Valuation (ODV) methodology. This work is part of the Commission’s continuing development of a regulatory regime for lines businesses, as required by Part 4A of the Commerce Act.

The paper, released today, initiates the consultation process with interested parties in relation to a new ODV handbook. Interested parties are invited to make written submissions on the paper by 14 November 2003. The paper is available on the Commission’s website, www.comcom.govt.nz.

The Commission considers that asset valuations may be relevant to the targeted control and information disclosure regimes under Part 4A, such as during an inquiry by the Commission following a breach of the thresholds set by the Commission, or in the event that the Commission imposes control on a lines business. For lines businesses, the asset base predominantly comprises their system fixed assets.

“An ODV handbook should, to the extent possible, accommodate any potential requirement in relation to the Part 4A regulatory regime for lines businesses to prepare asset valuations using the ODV methodology,” said Business Competition Branch Director Geoff Thorn.

This varies from the current ODV handbook published by the Ministry of Economic Development prior to the enactment of Part 4A, which exists solely for the purpose of supporting the current information disclosure regime for lines businesses under the Electricity (Information Disclosure) Regulations. Part 4A requires the Commission to implement a new information disclosure regime. The Commission also announced today a change in the schedule for the consultation process associated with its draft decisions for resetting the price path threshold, released on 5 September 2003. A number of interested parties have requested an extension to the Commission’s deadline for written submissions on the draft decisions. In response, the Commission has extended the deadline for submissions on the draft decisions from 6 October to 20 October 2003, and shifted the related conference to 3-6 November 2003.

Background Part 4A of the Commerce Act 1986, which commenced on 8 August 2001, establishes the regulatory regime for large electricity lines businesses (distribution businesses and Transpower). The Commission is required, inter alia, to set thresholds and assess the performance of electricity lines businesses against those thresholds. If one or more of the thresholds are breached by an electricity lines business, the Commission could further investigate the business and, if required, control their prices, revenue or quality. In effect, the thresholds are a screening mechanism to identify electricity lines businesses whose performance may require further investigation and, if required, control by the Commission.

The purpose of the targeted control regime, as set out in section 57E of the Commerce Act, is to promote the efficient operation of markets directly related to electricity distribution and transmission services through targeted control for the long-term benefit of consumers by ensuring that suppliers– are limited in their ability to extract excessive profits; and face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and share the benefits of efficiency gains with consumers, including through lower prices.

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