Preface
Purpose of the Handbook
1. This handbook has been published by the Secretary of Commerce pursuant to section 170(1)(g)(i) of the Electricity Act 1992 for the single purpose of providing the methodology to be adopted in valuing the system fixed assets of Electricity Lines Businesses (ELBs), as defined by the Electricity (Information Disclosure) Regulations 1999 to support the disclosure of performance measures under Regulation 15 of the Electricity (Information Disclosure) Regulations 1999 (the regulations).
2. This edition of the Optimised Deprival Valuation (ODV) handbook supersedes both the Handbook for Optimised Deprival Valuation of Transpower dated 7 July 1994, and the Handbook for Optimised Deprival Valuation of Electricity Line Businesses dated 28 May 1998.
Coverage of the Handbook
3. The handbook covers the valuation of system fixed assets using the ODV methodology. The handbook does not cover the valuation of non-system assets that ELBs may own.
Defining the Valuer(s)
4. For the purposes of this handbook, the term Valuer(s) refers to any party (or parties) responsible for the preparation of all or any part of the valuation.
Frequency of Preparation of ODVs
5. The regulations require ELBs to complete a valuation based on the ODV methodology at least every three years or whenever there is a cumulative increase or decrease of 10% or more in the capacity of the electricity system (as measured in system length or transformer capacity) since the last ODV, whichever occurs first. The valuation must be carried out as at a specific date. ELBs may undertake valuations on a more frequent basis if desired. The most recently completed and certified valuation must be used in the calculation of the financial performance measures required to be disclosed under the regulations.
Disclosure of ODV Reports
6. The regulations require all ELBs to disclose annually the value of their system fixed assets and make a valuation report available to the general public for inspection. The valuation report must disclose the following information in relation to the methodology used:
- the asset replacement costs and lives used, the quantity of assets in each category of asset replacement costs and lives used, and the replacement cost of the network; and
- details of the amount of depreciation charged, and the depreciated replacement cost of the network; and
- details of the components of the network which were optimised, and the optimised depreciated replacement cost of the network; and
- details of the comparison of the optimised depreciated replacement cost with economic value for those parts of the network which may not be able to sustain tariffs based on optimised depreciated replacement cost (including any specific assumptions used for the purpose of calculating the economic value of that part of the network).
7. Form 7 being the certificate related to ODV Valuation Reports of electricity line businesses including Transpower must include, inter alia, the Optimised Depreciated Replacement Cost (ODRC), the Optimised Deprival Valuation (ODV), and the valuation of the line business assets, including the system and non-system fixed assets and net working capital.
Tariff Setting
8. Tariff setting is an independent process from preparation of ODVs. There is specifically no regulatory requirement that prices be determined on the basis of system assets being valued according to ODV.
General
9. The handbook has been prepared by the Energy Markets Regulation Unit (EMRU) within the Resources and Networks Branch of the Ministry of Commerce. ELBs encountering problems with the handbook are welcome to discuss issues arising with the EMRU. The Ministry of Commerce will monitor the application of the handbook, with a view to subsequent modification in the light of experience.
Energy Markets Regulation Unit
Energy Markets Information and Services Group
Resources and Networks Branch
Ministry of Commerce
WELLINGTON
April 1999
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