Transpower expenditure finalised as price setting decisions take shape
Published02 Sep 2019
Last week we published our decisions on some key inputs involved in Transpower’s individual price-quality path (IPP) for the period 2020-2025.
As required by the IPP reset process, Transpower provided us with the expenditure and quality measures it considers should apply to it for the next regulatory period. Its proposal was scrutinised by an independent verifier prior to being submitted to us and has been subject to further consultation since we issued our draft decision in May.
The report published yesterday included our final decisions on Transpower’s operating and capital expenditure allowances for 2020-2025. For capital expenditure, our decision allows $1.4 billion, an increase of $25m from our draft decision. The amount we have allowed for operating expenditure has also increased by $36 million to $1.36 billion, compared to our draft decision.
Our decisions provide for 98% of the expenditure that Transpower proposed it needed. The high acceptance rate reflects that overall its proposal was high quality and benefited from the scrutiny of the independent verifier before we reviewed it ourselves.
We also made decisions on Transpower’s quality measures, which included some refinements in response to submissions. This includes changes to the way breaches of the quality standards will be measured to reflect that the likelihood that Transpower would breach the standard was too high in the draft decision; and providing more flexibility in reporting timeframes.
Last week’s report does not provide any updated revenue figures. Our draft decision proposed a 10% reduction in Transpower revenues compared to the 2015-20 period largely due to lower financing costs reflected in the cost of capital rate. The cost of capital rate has fallen further since May and will be finalised in October. The final IPP will be published in November.
We are also currently working towards finalising the default price-quality path that will apply to 17 local lines companies for 2020-2025. Last month we held a workshop to discuss some of the key changes we are proposing to quality standards. Topics included how major events are taken account of in the quality standards, and a potential formal standard for how EDBs notify consumers of planned interruptions on the network. The workshop was constructive and we would like to thank those who took the time to engage with us.
The next step is to publish an updated draft decision this month using the latest data that has become available since the original draft decision in May. We remain on track to deliver the final decision by late November.