Submissions to the Commerce Commission
These submissions have been made in response to consultation papers published by the Commerce Commission. You can view the consultation papers on the Commission's website.
A short summary of each submission is provided and the full documents (PDF files) can be viewed using Adobe Acrobat Reader.
Summary
In this submission we:
- limited our comments to the manner in which the Commission proposed to return the outstanding HVAC (AC) customer balance of Transpower’s Economic Value (EV) account to AC customers
- submitted that the EV account should be returned in full to customers in the current regulatory period – 2010/15
- recognised that this return would require significant financial outlay on the part of South Island generators – particularly Meridian Energy – who would need to pay the outstanding debit balance of the HVDC EV account. However, we did not believe this should discourage the Commission from requiring a swift and long overdue settlement.
Summary
In this submission we:
- supported the Electricity Networks Association’s submission
- supported the draft decision to amend the compliance assessment formula to include a revenue differential factor
- raised concerns about the Commission’s delay in consulting on its enforcement criteria
- agreed that the compliance assessment formula should take effect from 1 April 2011
- commented on issues relating to input methodologies
- disagreed with the proposed amendment to the derivation of CPI.
Summary
In this submission we:
- emphasised that the process by which starting price adjustments occur should be contained in an input methodology determination
- noted that the Commission has not explained the test it proposes to use to decide whether it intends to exercise its powers under section 54K of the Commerce Act to reset starting prices
- considered that the Commission should exercise caution in using historical information to assess what suppliers’ “projected” profitability might be, and should explain how it will make such assessments based on historical information.
Summary
In this submission we:
- commented in detail on the Commission’s draft determination and reasons papers
- supported the Electricity Networks Association’s submissions on the papers
- addressed the correct legal approach to Part 4 and why the workable competition standard required an up-to-date replacement cost valuation
- supported our submission with a separate report from Orion’s expert economic advisers, NERA Economic Consulting Limited
- emphasised the central importance of the section 52A purpose statement, and the workably competitive standard, to the integrity of the Part 4 regime – any input methodology must meet those requirements, which in turn, imposes obligations on the Commission when developing input methodologies.
Summary
In this submission we:
- noted that the purpose statement indicated that the basic form of regulation would be the default price path (DPP) – EDBs could then choose whether to apply for a customised price-quality path (CPP)
- considered that the purpose statement implied that any information requirements set by the Commission in relation to an EDB’s individual proposal for a CPP should not impose information obligations on all EDBs
- noted that the CPP information requirements should not force an EDB to collect the same information multiple times in different formats
- noted that the level of prescribed information should not be so onerous that it would provide a disincentive for an EDB to apply for a CPP, when it would be in the long term interests of customers to do so
- gave detailed reasons why draft requirements based on the Australian regulatory approach would be inappropriate for New Zealand
- did not consider that benchmarking had a place in the evaluation of a CPP
- in general supported the Electricity Networks Association’s suggested improvements to the process
- noted that the Commission should not assume that the DPP would not be an appropriate starting point for a CPP proposal – if the DPP was robust (and the correct X-factor was set), then the DPP would be a sound base from which to account for specific considerations in the context of a CPP
- provided answers to the Commission’s specific questions.
Summary
In this submission we:
- agreed that further work on the DPP reset process was required in the areas identified by the Commission
- noted that the Commission identified the pass-through of avoided transmission charges as an area that needed further consideration, and we considered that this issue should be added to the work required
- broadly supported a staged approach to address the further work required, however we did not agree with the proposed consultation timeline set out in Table 1 of the paper.
Summary
In this submission we:
- at a high level, supported the framework outlined by Strata Energy Consulting Limited (Strata) for the CPP proposal information requirements
- identified significant concerns about some aspects of Strata’s proposals, such as the absence of evaluation criteria, the lack of acknowledgement that in some circumstances a ‘less than full building blocks’ analysis may be appropriate, contradictory messages and insufficient weight given to EDB’s asset management plans
- summarised some of our concerns about the proposed CPP information requirements and the principles and legislation which are relevant to setting those requirements.
Summary
In this submission we focused on the key points arising from the Commission’s emerging views paper and the workshop, namely:
- the establishment of the initial regulatory asset base (RAB)
- the Australian experience of asset valuation, and whether the hypothetical new entrant test required a “greenfields” or “brownfields” approach
- investor expectations
- rolling forward the RAB and whether the “workable competition” standard would require periodic ODV revaluations
- the link between optimised depreciated replacement cost (ODRC) and empirical evidence of ‘real’ market outcomes
- the allocation of common costs
- a review of empirical evidence on the relationship between asset values and costs through consideration of estimates of ‘Tobin’s Q ratio’.
Summary
In this submission we:
- agreed that a full building block approach was necessary and that as a result of this and other considerations, the Commission should recommend individual price-quality regulation for Transpower rather than a default price path or a customised price path
- did not agree that the system operator’s activities provided by Transpower form part of the conveyance of electricity by line and should be a regulated service under the Act
- recommended that the Commission ensure that any quality standards proposed in the draft recommendation be consistent with, and not conflict with, the quality standards set by the Electricity Commission
- identified a lack of clarity around how the recommendation that all Transpower’s capital expenditure must be approved by a regulatory body would fit with Transpower’s new investment contracts which are negotiated between Transpower and designated transmission customers
- agreed that avoided cost allocation methodology should be used to allocate common costs between the system operator and other activities, given the materiality of those costs.
Summary
In this submission we:
- limited our comments to those matters of principal concern that we wanted to explore at the workshop on 24-26 February
- noted that the Commission had not accepted many of the submissions made at its conference on the input methodologies discussion paper, and therefore the workshop should be structured to gauge the Commission’s view of the arguments put to it in that process
- identified some of the concerns that we had with the Commission’s new preferred approach to establishing the initial regulatory asset base (RAB)
- summarised our reactions to the Commission’s emerging views on the proposed approach to rolling forward the RAB
- set out our view on the Commission’s emerging view on cost allocation methodology
- briefly remarked on the Commission’s emerging view in relation to regulatory rules and processes under a customised price-quality path.
Archived submissions
View Orion's archived Commerce Commission submissions for 2006, 2007, 2008 and 2009.
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