Preface
Purpose of the Handbook
1. This handbook has been published by the Chief Executive of the Ministry of Economic Development pursuant to section 170(1)(g)(i) of the Electricity Act 1992. The methodology in this handbook is to be used to value the system fixed assets of Electricity Lines Businesses (ELBs), as defined by the Electricity (Information Disclosure) Regulations 1999 and subsequent amendments. The sole purpose of this valuation methodology is 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 for Electricity Line Businesses supersedes the Handbook for Optimised Deprival Valuation of Transpower dated 7 July 1994, the Handbook for Optimised Deprival Valuation of Electricity Line Businesses dated 23 June 1994, the Handbook for Optimised Deprival Valuation of Electricity Line Businesses dated 28 May 1998, and the Handbook for Optimised Deprival Valuation of Electricity Line Businesses dated April 1999.
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 fixed assets that ELBs may own. The treatment of non-system fixed assets and current assets is covered by generally accepted accounting practice (GAAP).
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.
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 state the valuation date, and disclose the following information:
- 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 line business system fixed assets; and
- details of the amount of depreciation charged, and the depreciated replacement cost of the line business system fixed assets; and
- details of the components of the line business system fixed assets which were optimised, and the optimised depreciated replacement cost of the line business system fixed assets; and
- details of the comparison of optimised depreciated replacement cost with economic value for those parts of the line business system fixed assets 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 line business system fixed assets); and
- the optimised deprival valuation of the line business system fixed assets.
7. Optimisation: the valuation report must also include the following information about the optimisation undertaken in preparing the valuation report:
- a description of the methodology used by the valuer in undertaking the optimisation;
- the existing load and load forecast at the end of the relevant planning period for each part of the network, including each point of connection, each zone substation and each individual distribution feeder;
- details of the ELB's quality of supply criteria used as the basis for optimisation;
- a full explanation of the reason for not optimising any part of the network where the quality of supply is greater than the disclosed optimisation criteria, including relevant details of any specific customer non-standard contract; and
- a schedule of all network optimisation and details of the valuation impact of each individual optimisation including details of the assets removed as Stranded Assets;
8. Economic Valuation: the valuation report must also include the following information about the economic valuation undertaken in preparing the valuation report:
- a description of the methodology used by the valuer in undertaking the economic valuation;
- a schedule of all feeders required to be tested for economic valuation and details of the economic valuation calculations used to assess those feeders; and
- details of the maximum sustainable tariff used as the basis for economic valuation.
9. Form 7 being the certificate related to ODV Valuation Reports of electricity line businesses including Transpower must include, amongst other things, the Replacement Cost (RC), the Depreciated Replacement Cost (DRC), the Optimised Depreciated Replacement Cost (ODRC), and the Optimised Deprival Valuation (ODV), of the line business system fixed assets.
Tariff Setting
10. 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
11. The handbook has been prepared by the Energy Markets Regulation Unit (EMRU) within the Resources and Networks Branch of the Ministry of Economic Development. ELBs encountering problems with the handbook are welcome to discuss issues arising with the EMRU. The Ministry of Economic Development 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 Economic Development
WELLINGTON
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