The forecast maximum allowable revenues that we set for Transpower at the beginning of the regulatory period are updated each year.
Transpower is limited in the revenue that it can recover from its consumers. We set revenue limits every 4 to 5 years at the start of each regulatory period in the form of a forecast maximum allowable revenue, or ‘forecast MAR’.
Forecast figures used to set the forecast MAR need to be updated
Each year we amend the forecast MAR to take account of capital expenditure that we have approved in a preceding disclosure year, as well as the Economic Value (EV) adjustments. Transpower proposes its updates to us first as part of this process.
The EV adjustments:
'wash-up' for any differences between the forecast cost values that we use to set the forecast MARs at the start of the period, and the actual costs that are incurred, and
take account of Transpower's performance against its incentives.
The forecast MAR flows through to transmission pricing
The forecast MAR is a significant component of Transpower’s total estimated revenue. Transpower’s total estimated revenue is derived from the forecast MAR along with the addition or subtraction of forecast voluntary revenue reductions that Transpower chooses to make, and additional 'pass-through and recoverable costs' that Transpower can't control or easily forecast.
Transpower uses total estimated revenue to set its pricing through the transmission pricing methodology (TPM). The TPM allocates how the revenue is collected from consumers and is overseen by the Electricity Authority. While updates to the forecast MAR will affect the prices consumers pay, there is no direct link between our update to the forecast MAR and any corresponding changes in electricity prices for individual consumers due to the allocating actions of the TPM.