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Summary of Submissions

[ Last Updated 20 April 2009 ]


Comment Submitter Ministry Comment

Is the proposed allocation of costs between activities appropriate?
No. Opposed to funding work that is not relevant to the Maui pipeline (i.e. for Part 5 price control over Powerco and Vector's Auckland networks). MDL If accepted, Powerco and Vector could argue that they should not pay for the costs of price-quality regulation until they are subject to that regime. In the interests of administrative simplicity it is argued that all gas pipeline businesses should be charged for all activities from 2009/10.
Yes. Agree with the proposed allocation. GasNet Noted.
No. Against funding the development of input methodologies and a default/customised price-quality path until it becomes subject to the new regime in 2012. Powerco Same argument as above. If accepted, MDL could argue that it should not pay for Part 5 price control over Powerco and Vector's Auckland network. In the interests of administrative simplicity it is argued that all gas pipeline businesses should be charged for all activities from 2009/10.
Yes. Agree that all gas pipeline businesses should be charged for all activities. Vector Noted.

If not, what could be used, and why?
Parties not impacted by a given activity should not be charged for that activity. MDL See above.
It is unreasonable to expect customers to bear the costs of developing a scheme that they will not benefit from for nearly four years. Recommends that businesses under Part 5 continue to pay their own costs, and do not contribute to the costs of developing the default/customised price-quality path. The division of funds has been occurring administratively since 2005 and it should not be significantly administratively complex to continue an already operational process. Powerco See above.

Is share of valuation appropriate to recover costs, within activities?
Yes. MDL Noted.
Yes, but note that in practice there are a number of issues that require further consideration. Specifically, there is no single prescribed standard for the valuation of fixed assets. (Vector uses the lesser of depreciated replacement cost and discounted cash flow; Powerco – cost or fair value; GasNet – depreciated replacement cost, revalued every three years).
Should a common asset valuation approach be implemented, there is likely to be some divergence between current asset valuation methodologies (and the relative share of the total for each company) versus the new standard. MED should investigate this issue further to examine the extent of potential divergence.
There will also be a need for the regulations to specify which assets are included in the regulated asset value. System fixed assets plus non system fixed assets of the gas pipeline business be used. 		GasNet These issues will be fully resolved once CC has developed the input methodologies for asset valuation. In the interim, the best publicly available information on fixed asset values remains those reported in the financial statements required under the Gas (Information Disclosure) Regulations 1997. It is proposed to use these valuations (notwithstanding the slightly different methodologies used) as the basis for recovering costs.
Yes. Powerco Noted.
No. Vector See below.

If not, what could be used and why?
While agreeing with the proposal, suggest that there should be a minimum levy to cover basic administration costs and a maximum levy based on the percentage of revenue. Powerco A balance must be found between cost reflective pricing and administrative simplicity. A complicated levy design will add compliance costs.
Too much weight has been given to equity considerations and too little weight to cost reflective pricing. Propose a combination of a flat fee (which is cost reflective) and a variable fee based on asset value which would provide greater balance. Vector A balance must be found between cost reflective pricing and administrative simplicity. A complicated levy design will add compliance costs.

Any other comments?
The levy will impose a significant additional financial burden. Request that a levy collection arrangement that is cost-effective for the pipeline owner be selected (not specified) and that adequate advance notice of the amount of the levy, and any subsequent adjustments, be provided. MDL Noted.
Extremely concerned about the magnitude of the estimated regulatory costs. Considers that there must be some overlap in CC's work between the electricity and gas sectors and that this should result in a lower levy. The regulatory costs far outweigh any potential benefits. Information disclosure is currently not gazetted until five months after financial year end (November). As such, information from two years previous may need to be used, with adjustments included in the year end reconciliation once more information is available. GasNet Noted.
Have significant concerns over the magnitude of the indicative financial estimates. The costs of gas regulation have spiralled in recent years and they appear significantly higher than the equivalent costs of regulation in Europe, particularly if population levels are taken into account. Agree with the proposed quarterly levy collection arrangements. Powerco Noted.
Supports quarterly collection of levies, however, opposed to changing levies during the course of the year as more up to date asset valuations become available. Would prefer that the asset valuation used for 2008/09 would be the 2007 valuation, as opposed to the 2008 valuation. Vector 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).
Would like clarification as to the treatment of levies for the 2008/09 year (i.e. between the existing levies and the proposed levies). Will companies be given a credit for levies already paid under 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.
Against CC being able to recoup budget overruns from regulated companies – believe that there should be substantially more information as to how the levy would be spent.
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.
Want clarification on whether it will be able pass through the levy to consumers. Vector Out of scope. CC decision.
Considers that the payment of these levies should be held over until such time as there is clarity as to how businesses can treat the levies for pricing purposes. The amount of levy over preceding years, plus the time value of money, could be re-cooped from consumers through a pass-through levy paid by distribution companies at this time. Vector Disagree. This would result in businesses receiving a substantial invoice in 2010/11.

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