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• Levy Funding Commerce Act

21. Table 1 shows the key activities to be funded by levy for each sector, and an indicative total budget (in $'000s) for these activities across each financial year. (It should be noted that these numbers are indicative only, and that this discussion paper is not consulting on the level of funding or the total amount paid by levy payers in each sector.)

Table 1: Activities to be funded by levy and budgeted total levy spending for each financial year (in $'000s).

22. There are commonalities across sectors in terms of the activities being funded by levies. However, each sector will be levied separately for the cost of regulation for that sector. More detail on the activities outlined in Table 1 above is as follows:

2.1.1 Input methodologies

23. The term input methodologies refers to the rules, process and requirements relating to regulation, such as how to calculate the cost of capital, value assets, allocate common costs and comply with regulatory specifications. Input methodologies are to be set in an up-front stand alone process, and will be used to inform information disclosure reporting, to feed into any future sector inquiry and to be used to set or reset price-quality paths.

24. Input methodologies are to be developed for regulation of all three sectors – airports, gas pipelines and electricity lines businesses. There are likely to be significant commonalities between the input methodologies that will be used by the three sectors. Work on developing the methodologies is being done in tandem to take advantage of potential synergies.

2.1.2 Information disclosure

25. An information disclosure regime for electricity lines businesses is ongoing. New information disclosure regimes under the Commerce Act are to be developed for gas pipeline businesses and major international airports (to replace existing regimes under the Gas Act 1992 and Airports Authorities Act 1966).

26. Once in place, information disclosure regimes for all three sectors require ongoing administration and monitoring, including:

1. Collection, checking and publication of information disclosed by businesses;
2. Monitoring, analysis and comment on disclosed information;
3. Ongoing refinement.

27. The information disclosure regime for international airports will be reviewed in 2012 to assess the efficacy of the regime and whether further regulation is warranted.

2.1.3 Related Activities

28. Costs will also be incurred for the following activities:

1. Assessment of 100% consumer trust owned electricity lines businesses where consumers have petitioned the Commission for the business to become subject to the default/customised price-quality path regime.
2. Administration of residual activities relating to regulation of electricity lines businesses under what was previously Part 4A of the Commerce Act, until these activities cease. Administrative settlements entered into by the Commission and lines businesses before 1 April 2011 for breaches of Part 4A prior to 1 April 2009 will be preserved for their term.
3. Administration of the Part 5 price control regime for gas pipeline businesses under control (Powerco and Vector's Auckland pipelines) until these businesses transfer to a default/customised price-quality path (sometime between 2010 and 2012).

2.1.4 Default/customised price-quality path regulation

29. The default/customised price-quality path regulation that gas pipelines and electricity lines businesses are to be subject to involves the following components:

1. Setting a default price-quality path for a regulatory period based on factors such as productivity trends and profitability.
2. Monitoring the performance of businesses subject to default/customised price-quality path.
3. Applying penalties and remedies for breaches of default/customised price-quality path (e.g. inquiries, administrative settlements, declaration of control).
4. Transitioning gas pipeline businesses currently subject to control of natural gas services (Powerco and Vector's Auckland pipelines) to the default/customised price-quality path regime.

30. However, it should be noted that section 53Y of the Act provides that the Commission's costs for assessing proposals for customised price-quality path regulation are funded through a fee payable by the business seeking an assessment rather than being funded through the levy. The Commission will assess a maximum of 4 proposals per sector per year, which includes collating, checking and assessing information required from a business for a proposal and making a determination within 12 months of receipt of a proposal.