ComCom releases key inputs for Transpower’s price-quality path

The Commerce Commission has issued its decisions on key inputs and approach for calculating the maximum revenue Transpower may recover and the minimum quality standards it must meet under its individual price-quality path (IPP) for the period 2020-2025.

Transpower owns and operates New Zealand’s national grid, transmitting electricity from the generation point to major users and to local lines companies that distribute it to homes and businesses.

It is subject to price-quality path regulation that sets the total revenue it can earn from customers as well as the minimum quality of service it must deliver.

Commission deputy chair Sue Begg says the decisions on expenditure and quality standards are a key step towards the final determination due in November.

“We have made minor adjustments from our draft decision to how much Transpower needs to cover its infrastructure (capital expenditure) and operating costs over the next five years, while continuing to meet our expectations on delivering acceptable service quality. The amount we built in for capital expenditure has increased by $25 million to $1399m, with operating expenditure increasing by $36 million to $1425m, compared to our draft decision.”

Transpower’s overall revenues are expected to reduce when compared to the current period, mainly due to changes in the cost of capital.

“Interest rates have continued to fall since our draft decision, further reducing the financing costs Transpower will face – which have to date dropped from 7.19% per annum for the current period to 4.87% per annum in the next five years,” Begg says.

“We are due to publish the final cost of capital rate in October, and this will feed into final revenue numbers to be published in November.”

Transpower has forecast greater investment will be needed in its network from 2025, which is likely to result in an increase in transmission prices for the next five-year period.

Ahead of that period of increased investment, it will be important that Transpower continues to improve and report on its asset health and criticality modelling, customer engagement, and accuracy in estimating the cost of its projects.

The commission’s decision is available here.