Electricity Lines Businesses Draft Info Disclosure

Electricity Lines Businesses: Commission releases draft information disclosure requirements and ODV Handbook

The Commerce Commission is inviting submissions on its draft information disclosure requirements for large electricity lines businesses, and on its draft handbook for the valuation of system fixed assets owned by lines businesses using the Optimised Deprival Valuation (ODV) methodology.

This work is part of the Commission's development of a regulatory regime for lines businesses, as required by Part 4A of the Commerce Act.

As drafted, the Commission's information disclosure requirements largely replicate and replace the existing information disclosure regime provided under the Electricity (Information Disclosure) Regulations 1999. The Commission intends to subsequently develop these requirements over time, with a major consultative review planned during 2004.

In addition to being relevant under the Commission's information disclosure regime, asset valuations may be relevant to the targeted control regime, such as during a post-breach inquiry 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 Acting General Manager, Geoff Thorn. "However, the Commission intends to take into account the business-specific circumstances of any lines business that is the subject of a post-breach inquiry".

This approach 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.

The Commission also released today a report prepared for the Commission by Parsons Brinckerhoff Associates, titled Development of a Handbook for Optimised Deprival Valuation of System Fixed Assets of Electricity Lines Businesses. The report explains the rationale behind the way issues raised by interested parties have been addressed in the Commission's draft ODV Handbook.

Interested parties are invited to make written submissions on these documents by 9 February 2004.

The Commission's documents and Parsons Brinckerhoff Associates' report can be found on the Commission's website, www.comcom.govt.nz .

Background

Part 4A of the Commerce Act 1986, which commenced on 8 August 2001, establishes a regulatory regime for large electricity lines businesses (distribution businesses and Transpower). Under Part 4A, the Commission must, inter alia, develop an information disclosure regime requiring lines businesses to disclose information concerning their business. The Commission is required to publish a summary and analysis of the information disclosed.

The Commission is also required under Part 4A to develop a targeted control regime. The Commission must set thresholds and assess the performance of lines businesses against those thresholds. If one or more of the thresholds are breached by a lines business, the Commission could further investigate the business and, if required, control their prices, revenue or quality. The asset valuation of a lines business may be relevant at this stage.

On 12 September 2003, the Commission released an Issues Paper relating to the development of a handbook for the valuation of system fixed assets owned by lines businesses using the Optimised Deprival Valuation (ODV) methodology. On 16 October 2003, the Commission released a Process Paper outlining the process that the Commission intended to follow in developing and refining the information disclosure regime and the ODV Handbook. The Commission invited submissions and comments from interested parties on both papers.

The purpose of the information disclosure regime, as set out in section 57T of the Commerce Act, is to promote the efficient operation of markets directly related to electricity distribution and transmission services by ensuring that lines businesses make publicly available reliable and timely information about the operation and behaviour of those businesses, so that a wide range of people are informed about such factors as profits, costs, asset values, price (including terms and conditions of supply), quality, security, and reliability of supply of those businesses.

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-

(a) are limited in their ability to extract excessive profits; and

(b) face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and

(c) share the benefits of efficiency gains with consumers, including through lower prices.

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