Review of related party transactions rules

In December last year we delivered the majority of our decisions on our latest review of the up-front rules, requirements and processes for our Part 4 regulations (which are collectively known as the input methodologies, or IMs).

Our December decisions made a small number of substantive changes and refinements to the existing input methodologies.

We also deferred three areas that are being progressed currently, and will be still delivered in line with the statutory timeframe that requires we review all IMs every 7 years. One of these areas is the IMs on related party transactions, which we are considering in conjunction with the associated information disclosure provisions. To advance our thinking on this we recently invited stakeholders to contribute their views to our problem definition paper.

Related party transactions in summary

Related party transactions occur when a regulated business transacts with an entity which is related to it by a common shareholding or by some other form of common control. The assumption is that those transactions may not be carried out on arm’s-length terms and that, as a result, expenditure of the regulated business may not reflect costs that would otherwise apply without the related party relationship.

The total volume and value of related party transactions are proportionately large for regulated businesses (ie, providers of electricity lines services and gas pipeline services). They also appear to be growing each year. For instance, between 2015 and 2016 there was a $200m increase in absolute dollar value of related party capital expenditure transactions (based on information disclosures made to us by regulated businesses). Based on these numbers, we are concerned at the potential for consumer harm.

The focus of our review

Across all the work we do, our aim is to make New Zealanders better off. With this in mind, we are looking into whether:

  • the arm’s-length policy intent of the related party transactions provisions is still relevant, and whether the way the provisions have been implemented in our rules could be more effective in achieving that policy intent
  • there are opportunities to reduce complexity and compliance costs for regulated suppliers.

We have recieved submissions from interested parties on our problem definition paper, which will be published on our website shortly.