Ministry of Economic Development Home| Contact MED|


Jump to Site Navigation Links
 
 
 

Links to this page were:

Section Subnavigation Links:

Electricity


Summary of Submissions

[ Last Updated 20 April 2009 ]


Comment Submitter Ministry Comment

Is the proposed allocation of costs between activities appropriate?
Yes. Agree that the proposed methodology is the most appropriate as it follows a "user pays" philosophy. Agree that it is unjustified to require consumer-owned lines businesses to contribute to the cost of default/customised price-quality path as this regulation does not apply to them. Eastland Noted.
Yes. Agree that this split is appropriate. ENA Noted.
Yes. Agree in general with this approach. Powerco Noted.
Impossible to form a view as not enough information provided on specific activities. Vector Noted.
Yes. Attempts at further separation and more detailed allocation of the activities are likely to be complex and potentially arbitrary. At a minimum CC needs to allocate the activities between sectors and, for electricity, between default/customised regulation and other activities – this is sufficient and quite possibly challenging enough. PWC Noted.
Yes. Allocating costs on the basis of time spent on the regulation of each business is unworkable and likely to be arbitrary. PWC Noted.
No. The different activities are not clearly divisible as proposed. Unison Disagree. CC has agreed that the division is possible.

If not, what could be used, and why?
The cost of investigations into consumer-owned trusts (e.g. if a petition under section 54H (3) of the Act) should be funded by the company being investigated. Powerco The costs must be recovered by levy so this proposal would prove administratively complex.
Not appropriate for non-exempt companies to pay for the costs of assessments of petitions relating to exempt companies. These costs should be borne by the customer making the proposal. Vector Refer above.
The costs should be allocated once input methodologies are decided upon (to take into account the relevance of the control regime work to the information disclosure regime). Unison This would result in businesses receiving a substantial invoice in 2010/11.

Is share of valuation appropriate to recover costs, within activities?
Yes. Method provides consistency as all lines businesses use the same established methodology for asset valuation. Since the methodology is already in place the administration of levies should be straightforward. Eastland Noted.
Yes. Agree that the levy should be apportioned on the basis of asset valuation. ENA Noted.
Yes. It is more logical to allocate based on customer numbers, but appreciate that geography and population density lead to significant variation in the proportion of customers to system length and assets. Powerco Noted.
No. Too much weight has been placed on equity considerations and not enough on cost reflective pricing. Vector A balance must be found between cost reflective pricing and administrative simplicity. A complicated levy design will add compliance costs.
Yes. Do not support the use of any other allocators presented – they are inappropriate as relativities between companies are distorted by network characteristics. Strongly oppose a flat rate levy because consumers of small companies would contribute more than consumers of large companies (which is inequitable). PWC Noted.
Yes. However, effective implementation relies on CC mandating a valuation methodology common to all regulated ELB's which is made available on an annual basis in a timely manner. PWC A CC decision on a common asset valuation methodology will be made by 30 June 2010 as it is one of the required input methodologies. A common methodology exists in the meantime (ODV) (see note below re Transpower and DHC)
Yes. Agree with the use of asset valuation to allocate costs, but potential changes to the derivation of the regulatory asset base may make this approach difficult to apply in future. Horizon Noted. There should always be a consistent asset valuation methodology for electricity lines businesses. The valuation of Transpower is large enough that minor variations (due to the application of a different valuation methodology) become insignificant relative to other businesses.
Yes. Allocating the costs based on each business's share of the total asset valuation is satisfactory in principle. Transpower Noted.

If not, what could be used and why?
As well as using share of valuation, there should be a minimum levy for each company to cover basic administration costs and a maximum levy based on a percentage of revenue. Powerco Adds administrative complexity (and costs).
A combination of a flat fee (which is more cost reflective) and variable fee (based on an allocator such as asset value) should be used. Vector Adds administrative complexity (and costs).
If there remains a difference between Transpower's valuation methodology and that of ELB's, CC should separately identify the costs of each activity (which Transpower can be levied for) and the remainder can be apportioned to ELB's based on asset value. If the use of asset values become impractical, would support the use of total electricity supplied as a basis for apportioning the levy but only if Transpower's costs are allocated directly to them. In the absence of consistent asset valuations, total electricity supplied on the network is the most relevant indicator of the relative size of ELB's. PWC (note Horizon's comment below) Agree that could be some variance in asset valuation due to Transpower now using DHC. However, the valuation of Transpower is large enough that minor variations (due to the application of a different valuation methodology) become insignificant relative to other businesses.
Should electricity supplied be used as a basis for allocating the levy will result in some companies being allocated a disproportionate share of the cost. In the case of Horizon, five major industrial consumers use of 50% of electricity supplied. Adjustments in the allocation approach would be required. Horizon Agree, MED is proposing asset valuation for electricity lines businesses.

Any other comments?
Regulatory cost should be kept to a minimum for businesses. For smaller businesses especially, these costs can otherwise be a substantial burden. The levy process should be fair and transparent for all stakeholders so as to not create uncertainty. Eastland Noted.
Costs should ultimately be met by the beneficiaries of the regime (i.e. consumers). The mechanism for ensuring CC recognises the levy as a pass-through cost is unclear. This could be achieved through a clause in regulations or through a section 26 statement. ENA Out of scope. CC decision.
Companies facing control and/or meeting the information disclosure requirements are also incurring significant additional compliance costs, in addition to the levy. We recommend that it become a policy objective that the full compliance costs of a regulatory regime are identified and met by the ultimate beneficiaries. This would place a reasonable check on the tendency for regulatory creep to occur because incremental costs in relation to benefits would be clearly recognised. ENA Noted.
Concerned at the level of funding. CC should lower its own costs to minimise the cost of regulation on energy consumers. Powerco Out of scope.
Levies under section 53ZE of the Act should be pass through costs under 52T(c) of the Act for electricity lines regulation. Powerco Out of scope. CC decision.
Do not consider it appropriate for CC expenditure to be recovered through levies until such time as ELB's are able to recover those costs in prices. CC must determine (by 2010) what costs will be treated as pass through costs under section 52T of the Act. Levies for the preceding years (plus the time value of money) could be recouped from consumers by distribution businesses once a decision is made. (Under the recent Gas Final Authorisation notice, gas levies are treated as a pass through cost). Vector Disagree. This would result in businesses receiving a substantial invoice in 2010/11.
In the interests of certainty, levies should not change throughout the year.
If asset valuation is used, levies should not be changed within a year if the valuation changes (as is currently the case). For example, 2008/09 levies should be based on the 2007 valuation, as opposed to the 2008 valuation. 		Vector There must be some flexibility in case of under expenditure (or recovery of funds appropriated during the year).
The final levy paid in a year should be based on the most recent valuation available to reflect asset changes. For example, if it is not adjusted, the levy paid for the year ended 30 June 2009 would be based on valuations as at 31 March 2007 (over two years earlier).
Impossible to gauge whether the money will be well spent from the information provided in the discussion paper. Would like to see a more detailed plan setting out how funds would be spent (particular activities of CC, cost of various inputs such as staff, consultants, research) and assurance than there will not be undue duplication in the process of developing these regulatory processes. Vector Noted. The level of funding of specific CC activities is determined as part of the annual Budget process.
Budget overruns should not be recovered from businesses at the end of the year. This provides no incentives for CC to act efficiently and manage within budget or re-prioritise expenditure. Vector There must be some flexibility in CC's funding to reflect changing circumstances and priorities. CC must go through the normal government budget bid process to receive extra funding.
Would like clarification as to the treatment of levies for 2008/09 – how will the difference in liabilities between the existing and proposed regulations be dealt with? Will companies be given a credit for levies already paid under the existing regulations? Vector It is proposed that the existing levy regulations remain in place until 30 June 2009. The usual "wash up" based on actual expenditure for 2008/09 will occur later in 2009.
Concerned that here has been no explicit cost-benefit analysis. Would encourage CC and MED to ensure that the direct costs of regulation are minimised and that any potential synergies between the sectors are fully exploited. PWC Noted.
Support a consistent approach across all three sectors. PWC Agree.
Assurance needs to be given that levy costs will be allowed as pass through costs, otherwise cost-benefit allocation will be distorted. Unison Out of scope. CC decision.
Regulation is becoming an increasingly costly burden. Amendments to the regulations should take into account the increasing cost burden of regulation in the industry. Unison Noted.
There should be provision in the levy regulations for businesses whose exempt status changes during a regulatory period. PWC Agree.
Raised issues around timing of financial year and disclosure of asset valuations (which vary between sectors). PWC The regulations will be based on the principle that the most recent valuations available should be used.
Expenditure on the levy forms part of Transpower's total operating expenditure which is constrained by the terms of the Commerce Act (Transpower Thresholds) Notice 2008. If, as a consequence of the need for increased expenditure in order to satisfy the requirements of the amended Act, the quantum of the levy increases at a rate substantially higher than the rate of increase in the consumers' price index, it would be appropriate for CC to consider the case for reclassifying expenditure by Transpower on the levy as a "pass through" cost. Such a classification would make the treatment of the CC levy equivalent to that of the EC levy. Transpower Out of scope. CC decision.
Transpower no longer uses optimised deprival value (ODV) as the basis for valuing its fixed assets. Transpower is now using depreciated historical cost for this purpose, as permitted by CC (and outlined in the Commerce Act (Transpower Thresholds) Notice 2008).

Transpower Noted. Transpower's most recent valuation used for levy collection is based on ODV (as at 30 June 2007 – gazetted 20 Nov 2007). Levy collection to date has been based on ODV, subsequent years will be based on DHC.

Back to Top



Jump to main page content.