Issues Arising at Ministry's Forum on Amendments to the Electricity (Information Disclosure) Regulations
[ Last Updated 16 January 2006 ]
This document summarises the issues raised at the Ministry's Forum of 13 May 1997 on proposals for amending the Electricity (Information Disclosure) Regulations 1994, and outlines the Ministry's position on each of these issues.
These issues relate to amendments to the current Regulations. Further amendments to the Regulations will be required once the Government's decision to separate line from retail and generation activities has been implemented.
Agenda Item 1: Narrow Definition of Line Business
Interposed use-of-system agreement versus conveyance agreement: One attendee suggested that the Ministry's proposal that, for the purpose of information disclosure, line businesses should be assumed not to have an interface with final customers effectively precluded competing retailers from entering into "conveyancing" agreements with incumbent electricity companies.
The Ministry's understanding is that the contracting arrangements amongst competing retailers, incumbent line owners and final consumers generally take one of the following forms:
- Interposed use of system agreement: The competing retailer contracts with the incumbent for the right to use the incumbent's lines to convey electricity, and for the incumbent to continue to provide line function services to the final consumer. The incumbent bills the competing retailer, not the final consumer. The final consumer has one contract (with the competing retailer) for both electricity retailing and line function services, and receives one bill.
- Conveyance agreement: The competing retailer contracts with the consumer for the supply of electricity only. The consumer requires a separate contract with the incumbent for the supply of line function services, and therefore receives two bills.
It is not the Ministry's intention to preclude use of either type of arrangement (the Ministry's view is that it is up to the parties concerned to negotiate the type of agreement to be used), and our view is that either type of arrangement is possible under the proposals. Where incumbent companies entered into conveyance agreements with competing retailers, the implication of allocating the majority of customer service and billing activities to the electricity retailing business is that it would be the incumbent's electricity retailing business, rather than its line business, which would bill final customers for line charges. Accordingly, the costs of billing final customers for line charges would be allocated to the electricity retailing business, rather than the line business.
Allocation of customer service and billing activities: The Forum background papers stated that, in allocating items, companies would be required to follow the mandatory allocation principles that: (i) line businesses should include only natural monopoly activities, and should be assumed not have an interface with final customers; and (ii) that items should be allocated using the avoidable cost methodology. The background papers stated that: "...the Ministry would expect that (assuming that the line business does not have an interface with final customers) approximately 90 percent of customer service and billing activities would arise from electricity retailing business activities and 10 percent from line business activities..."
A number of companies raised concerns with this, pointing out that, even if the line business does not have an interface with final customers, it would incur significant customer service costs in dealing with customers' line-related queries, as passed on by retailers.
While the Ministry is not proposing any amendments to the mandatory allocation principles, we have modified our proposals for allocation of customer service and billing activities as follows:
- Billing activities: The Guidelines will include a mandatory principle that the line business does not bill final customers. The line business would accordingly be allocated only that proportion of billing costs required to bill the retailers supplying customers on its network. The suggested allocator for billing costs would be 90% to the electricity retailing business and 10% to the line business.
- Customer service activities relating to billing (for example, final customers' queries about their accounts): As it is the electricity retailing business (or competing retailer) which bills final customers, the Guidelines will state that none of the costs of dealing with final customers' queries about their accounts should be allocated to the line business.
- Customer service activities which are not related to billing (for example, customer queries about faults, disconnections, specifics of connection and power quality issues, etc): These activities would be allocated between the line and electricity retailing businesses. The Guidelines will state that companies should allocate to the line business that portion of customer service costs which would be required in order to deal with queries and complaints from retailers (that is, the portion of costs which would be unavoidable to a stand-alone line business).
Agenda Item 2: Allocation of Boundary Items
Metering: There was general agreement that all MARIA-compliant meters should be allocated to the electricity retailing business, but attendees expressed concern that, were other meters to be allocated to retailing, retailers would have scope to restrict competition by refusing access to these meters.
As stated at the Forum, the Ministry considers that refusal of access to these meters would be a Commerce Act issue. In addition, line and electricity retailing businesses which are part of the same company can be expected to have identical incentives, and allocation to the line business would not therefore remove concerns about access to meters.
The Ministry intends to proceed with the proposal to allocate metering to the electricity retailing business, for the following reasons:
- Provision of metering is a potentially contestable activity.
- Inclusion of metering in the line business could increase the complexity involved in unbundling line charges where competing retailers did not wish to use the incumbent's meters. (Given that advanced metering technology is required to provide energy efficiency services, it seems likely that most competing retailers would wish to provide their own metering, and that allocation of metering to the electricity retailing business would therefore facilitate negotiation of access charges.)
- Were metering to be allocated to the line business, the line business would have scope to cross-subsidise its contestable metering activities from its natural monopoly activities, thereby making it more difficult for competing retailers to compete. (For example, if, by subsidising its non-time-of-use meters, the line business reduced its metering charges to the retail company from $100 to $50 per annum, competing retailers entering the market and supplying their own time-of-use meters would be competing with the incumbent's (non-time-of-use) metering costs of $50, rather than $100.)
Load control equipment: New centralised load control technologies may be contestable: One attendee pointed out that some new types of centralised load control technologies would be contestable and should not be allocated to the line business. It was agreed that the Guidelines should not preclude allocation of such equipment to the electricity retailing business.
The Ministry will attempt to ensure that the Guidelines are drafted in such a way that they do not preclude allocation of new, contestable, types of centralised load control to the electricity retailing business. For example, the Guidelines could state that centralised load control equipment which is inseparable from other line business assets should be allocated to the line business, and customer-based load control equipment and new types of centralised load control equipment which are not inseparable from other line business assets (that is, which do not have natural monopoly characteristics) should be allocated to the electricity retailing business.
Line losses: Some attendees suggested that the cost of line losses should be allocated to the line business on the grounds that:
- retailers do not have incentives to reduce the losses they impose on the system because all competing retailers face the same losses, regardless of the extent to which they give rise to losses; and
- retailers are not in a position to put pressure on the line business in the way suggested in the Ministry's background papers.
The Ministry's view is that the cost of losses1 should not be allocated to the line business, however, because:
- Allocation to the line business would require the line business to become involved in purchasing electricity.
- Our understanding is that approximately fifty percent of losses arise through theft, slow meters and inadequate billing processes. It is appropriate to allocate these to the electricity retailing business.
The Ministry disagrees with the suggestion that retailers have lower incentives to reduce losses than line businesses. Both businesses are part of the company, and accordingly share the same incentives. The accounting separation requirements under information disclosure do not impact on companies' incentives.
The Ministry accordingly intends to proceed with theproposal that line losses be allocated to the electricity retailing business.
Generation transmission and connection assets: Allocation of connection and transmission assets relating to other companies' generation plants: One attendee questioned what allocation would be appropriate if an incumbent electricity company built connection and transmission assets for another company's generation plant embedded within its distribution network.
The rationale for proposing allocation of connection and transmission assets relating to own generation to the generation business is that, if these were allocated to the line business, the company would have scope to cross-subsidise generation activities from captive line business customers. Where the generation plant is owned by another company, these concerns do not arise. If the incumbent company owned these assets, it would be appropriate for them to be allocated to the incumbent line business.
Maintenance and asset construction activities:2Boundary between line business and "other": While there was general agreement with the proposal to allocate maintenance and asset construction activities to "other", several attendees asked for clarification of where the Ministry considered the boundary should be between "other" activities and line business activities. The general view of the meeting seemed to be that, while staff involved in maintenance of lines and asset construction might be allocated to "other", staff involved in system planning and design should remain in line business.
The Ministry has now given further consideration to an appropriate boundary between the line and "other" businesses, and now proposes that:
- Where companies are involved in construction of assets, maintenance of assets, customer connections/disconnections and/or customer meter reading and maintenance, the costs, revenues, assets and liabilities relating to these activities should, in the first instance, be allocated to the "other" business, on the grounds that these are unambiguously contestable activities. This appears to be consistent with the general industry view of what activities should be allocated to "contracting divisions".
- Network planning (including planning of initial construction and planning of maintenance) and design activities should be allocated to the line business, on the grounds that these activities can be considered to be a part of operating a natural monopoly line business. This appears to be consistent with the general industry view of what activities should be allocated to "contracting divisions".
Would companies be required to prepare new ODVs following the amendments to the Regulations? Attendees raised the issue of whether companies would be required to prepare a new ODV if the removal of metering and customer-based load control equipment from the line business resulted in a significant change in their ODV value. Some attendees suggested that companies should not be required to incur the costs involved in preparing a new ODV simply because of a change in policy.
Two of the Ministry's proposals will impact on companies' ODVs:
- the proposal to amend to the standard lives and values in the ODV Handbook and make these lives and values mandatory maxima;3 and
- the proposal that metering and customer-based load control equipment be allocated to the electricity retailing business.
The proposal to amend the ODV Handbook will have the effect of requiring any companies whose ODVs are based on standard lives and/or values which exceed the new mandatory maxima to prepare new ODVs. This is because Regulation 14 requires that companies' disclosed financial and efficiency performance measures are based on valuations of line business assets that comply with the ODV Handbook. The "ODV Handbook" is defined in Regulation 2 as the most recently published version of the Handbook. Once the new ODV Handbook is published, Regulation 14 will require that financial and efficiency performance measures be based on line business valuations which comply with the new ODV Handbook.
The proposal that metering and customer-based load control equipment be allocated to the electricity retailing business would reduce the ODVs of companies which currently allocate this equipment to their line business. Regulation 14(d) states that companies are required to carry out a new ODV valuation:
...Where the capacity of the system (measured either by system length or transformer capacity) to which the line business assets relate has increased by 10 percent or more, or decreased by 10 percent or more, since the line business assets were last valued using the ODV method...
Removal of metering and customer-based load control equipment will not change the system length or transformer capacity of companies' line businesses, therefore companies would not be required, under the current wording of the Regulations, to carry out new ODV valuations due to the effect of the removal of these assets from the line business.
For preparation of 1997/98 financial performance measures, companies which currently allocate metering and customer-based load control equipment to their line business, and accordingly include these assets in their ODV, should treat these as assets disposed of during the financial year (if they are not preparing a new ODV). Assets disposed of during the financial year are required to be included in the "revaluations" component of the ARP.
Allocation of Other First-Tier Items
Allocation of disconnection/reconnection costs and revenues: Several attendees asked whether disconnection/reconnection costs and revenues should fall into the line or electricity retailing business. The general view seemed to be that these activities should be allocated to the line business. It was noted that the Electricity Act places restrictions on who can perform disconnections or reconnections.
As noted under the section on maintenance and asset construction activities, the Ministry is proposing that connection/disconnection would be carried out by the "other" business. The question arises, however, as to whether it should be the line or electricity retailing business which bears the costs of these.
Both the line and retailing businesses may derive benefit from disconnections/reconnections, and the Ministry's view is that these revenues and costs should be allocated amongst the businesses on the basis of the benefits they derive.
Allocation of AC rental rebates: One attendee asked whether AC rental rebates from Transpower should be allocated to the line or electricity retailing business.
Transpower currently contracts with line and generation businesses, not with electricity retailing businesses.4 Under the current contracting arrangements between Transpower and electricity companies, Transpower rebates transmission rentals to its customers (line and generation businesses). These rebates are therefore a form of direct line and/or generation business revenue, and should be allocated to the line and/or generation business.
Agenda Item 5: Allocation of Second-Tier Items
Use of employee numbers as an allocator: One attendee questioned use of employee numbers, with employee numbers in electricity retailing, generation and "other" scaled by 0.33, as an allocator, pointing out that, if contracting employees were allocated to "other", this would result in only a small proportion of these items being allocated to the line business.
The Ministry is proposing that this allocator be used for allocation of non-directly attributable motor vehicles, office equipment, land and buildings, telephone, fax, cafeteria, human resources. Contracting employees, which are classified as "other", would also give rise to these assets and costs. It therefore seems entirely appropriate to allocate a portion of these assets and costs to "other".
In any case, companies are required to follow the principle of non-avoidability, and should deviate from the suggested allocators if these do not appropriately reflect the proportion of costs, revenues, assets or liabilities which should be allocated to the line business, for that company.
Allocation of dividends: One attendee suggested that it was inappropriate to allocate dividends on the basis of net profit after tax, because this figure did not reflect the amount of cash arising from each business, and it is cash levels which determine dividends.
After further consideration, the Ministry considers that it is inappropriate for the Guidelines to specify how companies should allocate dividends amongst their businesses. The Ministry accepts that allocation of dividends will depend on the cash available in each business and the cash requirements of each business. Allocation of dividends does not impact on companies' financial performance measures. Accordingly, the Ministry proposes that the Guidelines would not include a rule for allocation of dividends, but that the Regulations would require separate disclosure of the amount of dividends allocated to each business.
Use of total funds employed as an allocator: One attendee suggested that use of total funds employed as an allocator for second-tier items was inappropriate as it resulted in circular calculations. For example, "prepayments" is used in the calculation of total funds employed, but total funds employed is the suggested allocator for the non-directly attributable portion of prepayments. The implication of this is that total funds employed cannot be calculated until prepayments has been allocated, which is not possible prior to calculation of total funds employed.
We have reviewed the suggested allocators in the draft guidelines in the light of this comment. The circularity problem arises with the use of "total funds employed" as an allocator for non-directly attributable accrued payroll, prepayments and bank, cash and short-term investments (which are components of "total funds employed"). We are accordingly proposing that the suggested allocators for these items be as follows:
- Non-directly attributable prepayments: Allocation on the basis of "fixed assets", on the grounds that prepayments often relate to insurance, and the suggested allocator for non-directly attributable insurance is "fixed assets".
- Non-directly attributable accrued payroll: We had been proposing that this be allocated on the same basis as non-directly attributable employee salaries and redundancies. Non-directly attributable accrued payroll, employee salaries and redundancies relate to corporate and administration staff. We propose that the suggested allocator for all of these items should be allocation of half of the non-directly attributable component on the basis of "employee numbers" (to reflect the fact that a considerable portion of corporate and administration staff activities arise from servicing other staff) and half on the basis of "fixed assets" (to reflect the fact that corporate staff activities also arise from asset management).
- Non-directly attributable bank, cash and short-term investments: We were proposing allocation of half of the non-directly attributable component of these items on the basis of "revenue" and the other half on the basis of "total funds employed". We now intend to change this suggested allocator to allocation of half of the non-directly attributable component on the basis of "revenue" and half on basis of "fixed assets". The use of "revenue" would weight this towards the line and electricity retailing businesses, the use of "fixed assets" towards the line and generation businesses. The overall weighting would be towards the line business, which is consistent with the "avoidable cost" allocation principle.
It should be noted that companies are required in any case to follow the principle of non-avoidability, and should deviate from these suggested allocators if these do not appropriately reflect the proportion of costs, revenues, assets or liabilities which should be allocated to the line business.
Imbalance between debtors and creditors allocated to line business: One attendee suggested that the allocation proposals would lead to an imbalance in allocation of debtors and creditors. The Forum documents stated that line charge trade debtors are to be allocated to the electricity retailing business and the non-directly attributable components of other debtors and accounts payable are to be allocated on the basis of revenue. This implies that line businesses will be allocated little or no trade debtors, but significant creditors. Net working capital for the line business would therefore be negative.
After further consideration, we have decided that line charge trade debtors should appear in the line business financial statements, for the following reasons.
The proposed allocation methodology assumes that, for the purpose of information disclosure, line businesses do not bill final customers. Accordingly, either:
- line businesses would charge the electricity retailers on their network for line charges, in which case these retailers would be line charge trade debtors in the line business's accounts (and final customers would be line charge trade debtors in the electricity retailers' accounts); or
- electricity retailers would collect line charges on behalf of the line business (that is, act as an agent for the line business) in which case final customers would be line charge trade debtors in the line business's accounts.
Disclosure of cash tax: One attendee questioned the need for disclosure of cash tax, stating that it is difficult to allocate this amongst the businesses.
The Ministry has given further consideration to this issue, and now proposes that "taxation expense", "provision for deferred taxation" and "accrual of future tax benefit" be allocated amongst the businesses, recognising the benefits arising from accounting/tax differentials. Companies will also be required to allocate "cash tax" amongst the businesses for the purpose of calculating their accounting rate of profit ("ARP"), and this allocation should be consistent with the allocation of "taxation expense", "provision for deferred taxation" and "accrual of future tax benefit".
Agenda Item 6: Disclosure of Transfer Payments
Transfer payments between generation and electricity retailing businesses: One attendee queried whether it was necessary to require disclosure of transfer payments between the generation and electricity retailing businesses.
As noted at the Forum, the Ministry's view is that such transfer payments should be disclosed, given that companies have scope to cross-subsidise their generation activities from their captive electricity retailing customers.
Aggregation of transfer payments between line business and "other": Concern was raised that it would be unreasonable to require companies to disclose details of all of the transfer payments which arose between the line and "other" businesses. The meeting discussed appropriate ways of aggregating these transfer payments. There was general agreement that aggregation on the basis of "sensible groupings" (such as, for example, maintenance, construction of assets, etc) would be practical.
In the context of giving further consideration to this issue, the Ministry has discovered that the current wording of Regulation 20 does not cover disclosure of transfer between the line, generation and retailing businesses and "other". This is clearly not the policy intention of this Regulations - Regulation 20 is intended to cover all transfers from or to companies' non-contestable activities. Such transfers give companies considerable scope to suppress their line business profitability, or cross-subsidise contestable activities.
Accordingly, the Ministry proposes to seek Ministers' approval to amend Regulation 20 to close this loophole. We intend to make this amendment in time for it to take effect for companies' 1998/99 annual disclosures, but, in the interim, companies are invited to voluntarily disclose details of transfer payments amongst line, generation and retailing businesses and "other" in their 1997/98 disclosures.
We would also appreciate any comments on our proposedcategories for aggregation of these transfer payments, which are as follows:
- construction of:
- subtransmission assets;
- substations;
- distribution lines;
- MV switchgear;
- distribution transformers;
- distribution substations;
- LV reticulation; and
- other system fixed assets;
as categorised in standard asset tables in the ODV Handbook;
- maintenance of assets; and
- customer connections and disconnections.
For each of these categories, the transfer payment details would need to cover the number of assets, or time spent on maintenance or connections and disconnections.
Should the Regulations require disclosure of the methodology for calculating generation charges when explicit contracts are in place?
Currently, Regulation 8 requires companies to disclose their methodology for calculating imputed generation charges when no explicit contracts exist between the generation business and line or electricity retailing business for provision of electricity from own generation. The policy intention that companies be required to disclose these methodologies when explicit contracts are in place is not delivered by the Regulations as they currently stand. The Ministry therefore proposes that Regulation 8 be amended accordingly. Disclosure of these methodologies is very important for assessing whether companies are subsidising uneconomic generation.
Transfer payments for reconciliation services: One attendee suggested that it was inappropriate for the electricity retailing business to make a transfer payment to the line business for provision of reconciliation services, as it was the retailer, rather than the line business, which was responsible for these services.
The Ministry's understanding of industry practice is that line businesses develop line loss allocation methodologies, and advise the retailers operating on their networks of these methodologies. The process of reconciliation of losses is contestable, and can be carried out by the retailers themselves, using the line loss allocation methodology. Accordingly, the Ministry proposes that the Regulations and Guidelines would be based on the assumption that reconciliation should be carried out by retailers, and would not specify that line businesses should charge retailers for reconciliation services.
Agenda Item 8: Proposals for Disclosure of Line Business Costs and Revenues by Customer Group
Disclosure of line charge methodologies: Some attendees questioned whether the line charge methodology to be disclosed under Regulation 18 should be the methodology used to calculate line charges passed on to retailers, or the methodology used to calculate line charges to final customers. Where retailers repackage line charges to final customers, these methodologies will differ.
As noted at the Forum, the Ministry considers that, given that the intention of Regulation 18 disclosure is to ensure that line businesses impose line charges on customers in an equitable manner, the appropriate disclosure under Regulation 18 would be the methodology used by the line business for passing on charges to retailers.
Consistency between Regulation 18 and Regulation 22 disclosures: It was suggested at the Forum that, were companies to be require to disclose the methodology used by the line business for passing on charges to retailers under Regulation 18, Regulation 18 disclosures would be inconsistent with Regulation 22 disclosures of line charges to customers.
The intention of the Regulations is that the Regulation 22 disclosures provide customers with information about the component of their bill which would be unavoidable if they were to change electricity supplier. Charges arising from the line business should therefore be disclosed under Regulation 22, and these should be consistent with the Regulation 18 disclosures.
Calculation of line charges to final customers: It was noted at the Forum that retailers might have difficulty in calculating line charges to individual customers where line businesses passed on a bulk charge to the retailer.
Regulations 22 and 23 provide for this eventuality. Regulation 23 states that:
...Where any person is required by regulation 22 of these regulations to publicly disclose any line charge imposed by any other person in respect of the conveyance of electricity supplied by the first-mentioned person, that first-mentioned person may impute that line charge...
This Regulation therefore permits retailers to impute the line charge imposed by the line business.
A concern arises in that Regulation 23 does not specify that line charges should be imputed only if retailers have insufficient information to provide details of actual charges imposed by the line business (that is, only if the line business does not determine line charges for individual customers). Imputing of line charges may lead to final customers receiving less meaningful information about the non-avoidable component of their charges than if line charges are determined by the line business. The Ministry considers that imputation should be done only if strictly necessary, and that any imputed line charges should be labelled as such.
It is accordingly proposed that Regulation 23(1) be amended to permit imputing of line charges only in situations where retailers have insufficient information to provide details of actual charges imposed by the line business, and that any imputed line charges should be labelled as such.
Agenda Item 9: Proposals for Disclosure of Retail Business Costs and Revenues by Customer Group
Attendees raised the following concerns with this proposal to require companies to disclose incremental costs and revenues for electricity retailing:
- information about wholesale electricity costs is commercially sensitive;
- information about wholesale electricity costs can be obtained from EMCO's data on nodal prices; and
- disclosure of the cost and revenue information could lead to customers making assumptions about cross-subsidies based on the relatively crude information which the Ministry is proposing be disclosed
The Ministry has given consideration to these concerns, but has decided to recommend to Ministers that companies be required to disclose these details. Ministers have expressed particular concern about the possibility of companies cross-subsidising their large, contestable, retail customers from their essentially captive smaller retail customers. The Ministry considers that the disclosure requirements in this area should be such that interested parties can obtain at least some indication of whether cross-subsidies between retail customer groups are occurring. If this was not included in disclosures, members of the public wanting to assess the revenue collected from each of the customer groups would need to spend a considerable amount of time and effort in compiling all the information they needed to carry out this assessment.
The Ministry accepts that this information might suggest cross-subsidies when valid reasons exist for a customer group's costs to be below the average wholesale electricity cost (for example, industrial customers may impose lower costs than other customers if most of their electricity use is during off-peak times). Further sophistication of these proposals would impose excessive compliance costs, however, and voluntary disclosure of additional information by companies would ensure that the information was correctly interpreted.
Definition of "revenue": One attendee queried the definition of customer revenue which would be used under these proposals.
The Ministry suggests that the revenue definition used for the revenue allocator should be used for these requirements, that is:
"Electricity retailing business revenue refers to revenue from electricity retailing charges to final customers, excluding revenue relating to line or transmission charges."
Threshold for "small" customers: Concern was raised that the 12,000 kWh per annum threshold for the small customer group might be too low. Attendees pointed out that average domestic consumption was skewed by the large numbers of customers below 5,000 kWh, for example small baches. Some attendees suggested that a threshold of 12,000 kWh would exclude approximately half of their domestic customers (for example, with heating requirements being greater in the lower South Island, customers consume more). A threshold of 18,000 kWh per annum was suggested as a more realistic boundary.
According to statistics published by the Ministry,5 the average consumption by domestic customers for the year ended March 1996 was 7,810 kWh. Average consumption by North and South Island domestic customers was 7,420 kWh and 8,870 kWh, respectively. Even taking into account that average domestic consumption is skewed by customers who consume less than 5,000 kWh per annum, therefore, it seems likely that most domestic customers would consume less than 12,000 kWh per annum.
In any case, the purpose of the "small" customer group is to isolate those customers which are clearly non-contestable, and which are not likely to become contestable in the near future. For this purpose, it is preferable to choose a relatively low threshold.
Introduction of a further "small" customer group: It was suggested that the small consumers group be divided into two, with the dividing point at the median of domestic consumers.
The purpose of the "small" customer group is to isolate those customers which are clearly non-contestable in order to enable assessment of whether these customers are cross-subsidising larger, contestable customers. Given that all customers consuming less than 12,000 kWh per annum are clearly non-contestable, and unlikely to become contestable in the near future, scope does not arise for companies to cross-subsidise "small" customers from "very small" customers. In addition, some Forum attendees suggested that disclosure for this smallest group may not give the desired information, stating that, while it might be valid to wish to have a separate group for low income households (such as single people living alone) such a group would also include, for example, a great number of baches owned by higher income people. The Ministry's view is that no additional benefit arises, therefore, from splitting the "small" customer group into two.
Classification of customers: Concerns were raised as to how companies would determine which group customers fell into, given that many customers move during the year. For example, a "medium" customer which commenced consumption part-way through the year might consume only a small amount of electricity, and be classified as a "small" customer. It was suggested that classification should therefore be on the basis of metered installations, rather than actual customers.
The Ministry envisages that companies would comply with these requirements by setting up a search of their billing database which grouped customers according to the consumption thresholds and aggregated the revenue in each group. Misclassification of customers which have commenced or ceased consumption part-way through the year would lead to revenue from some larger customers being included in the smaller customers' aggregated revenue. Some concerns arise with including these potentially contestable larger customers in the small customers group. The Ministry is concerned, however, that use of a definition of "total customers" which was unrelated to companies' billing databases, such as metered installations, might significantly increase the compliance costs associated with this proposal, as companies would be required to match customer revenue to metered installations.
Accordingly, the Ministry intends to leave it up to companies to decide how to overcome problems with classifying customers. (One possibility would be to classify these customers based on monthly consumption multiplied by twelve.) Companies should include with their disclosures a description of how they have classified these customers.
Should companies which are solely involved in electricity retailing be required to disclose incremental costs and revenues for electricity retailing? Attendees queried whether companies, such as United Electricity, which are solely retail companies, would be subject to these requirements.
The Ministry proposes that any electricity retailer which supplies customers in two or more of the customer-size thresholds (for example, which supplies some customers which consume less than 12,000kWh per annum, and some customers which consume more than 100,000kWh per annum) would be subject to these requirements.
Mechanism for determining when sufficient competition has developed for these requirements to be removed: In response to the Ministry's comment that the intention would be to remove these requirements once sufficient competition developed in the market for retail competition, it was suggested that the Ministry either undertake to formally review the need for these provisions in two to three years' time, or include a "sunset clause" in these Regulations.
The Ministry undertakes to carry out a formal review, within three years' time, of the need for all of the Regulations applying to electricity retailers.
Agenda Item 10: Proposals for Disclosure of More Detailed ODV Reports
Disclosure of additional information: One attendee expressed concern that the proposal to require disclosure of certain minimum details would result in companies disclosing only the specified details, whereas many companies are currently disclosing additional information.
In developing its proposals for more detailed ODV report disclosures, the Ministry has attempted to identify the key components of the ODV process. The Ministry considers that disclosure of these components enables adequate assessment of companies' ODV valuations. The Ministry will ensure, however, that the wording of this Regulation does not imply that companies should disclose only the information specified.
Disclosure of all relevant documents: One attendee suggested that all documents which are viewed by the auditors should be required to be publicly disclosed. Other attendees considered that the compliance costs involved with this proposal would be excessive.
In developing its proposals for more detailed ODV report disclosures, the Ministry has attempted to identify the key components of the ODV process. The Ministry considers that disclosure of these components enables adequate assessment of companies' ODV valuations. Nevertheless, the Ministry encourages companies to make publicly available any information in which the public is interested.
Agenda Item 11: Other Proposals
Proposal to require electricity companies to disclose certain information on the Internet, in addition to publication in the Gazette: Attendees asked whether, where they received requests for information disclosed on the Internet, they could simply refer requesters to the Internet.
The Ministry's understanding is that an amendment to the Regulations would be required in order to provide that companies could simply refer requesters to the Internet. The Ministry does not support such an amendment at this time, given that not all users have access to the Internet. The Ministry suggests, however, that companies advise requesters that the information is on the Internet, and ask if they would prefer to access it that way. The Ministry envisages that many requesters would prefer to download information from the Internet.
Amendment to the definition of "total customers" in the first schedule to the Regulations: One attendee raised the point that technically every street light is a customer network connection point ("CNCP"). It was suggested that "metered CNCPs" would be a more appropriate measure.
The Ministry accepts this suggestion.
Energy Markets Policy Group
Resources & Networks Branch
Ministry of Commerce
31 March 1998
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