ComCom reviewing energy networks regulations

The Commerce Commission has begun reviewing regulatory rules for energy networks and airports.

It has published a notice of intention to start a review of the rules and processes that underpin its regulation of the energy and airports sectors under Part 4 of the Commerce Act, aiming to complete that by the end of next year.

These input methodologies must be reviewed at least every seven years and guide the commission’s regulation of businesses in these sectors. Within the scope of the review are rules affecting natural gas pipeline businesses, local electricity lines companies, Transpower as the operator of the national electricity grid, and the major airports in Auckland, Wellington and Christchurch.

The forthcoming review offers an important opportunity to reflect on the impact of climate change and decarbonisation as well as the ongoing impact of COVID-19, associate commissioner Vhari McWha says.

 “A key part of the review will be working closely with industry and other government agencies to understand the issues as a whole and the role that our regulatory settings can play in helping regulated entities deliver the right outcomes for Aotearoa New Zealand,” she explains.

“Our rules may need to be more flexible to help keep up with the pace of change, but we’ll need to balance this flexibility with the benefits of certainty that input methodologies are designed to provide to regulated parties as well as other stakeholders.”

The input methodologies specify such things as how assets are valued and the process for setting the rate of return that price-quality regulated businesses can earn on those assets, which in turn affects the amount that consumers pay for the services.

They also contain rules on when price-quality paths can be reconsidered, how costs are allocated between regulated and non-regulated activities, the treatment of certain costs including tax costs, and on the calculation of incentives to promote efficient operating and capital expenditure.

In December 2021 the commission drilled down into the impact of climate change and decarbonisation on the electricity sector in an online workshop. A summary of the workshop has been published on the commission’s website along with submissions on the workshop and the open letter.

ComCom plans to complete the input methodologies review by December 2023 and will provide further updates on its process once the initial stages of the review process are completed.

It will call for submissions on a process and approach paper early in the second quarter of 2022 as well as publish a draft framework for its decision making. The first stage of the review includes the problem definition phase.

“Stakeholder input is vital during this first problem definition phase,” McWha says. “It will shape the entire process and promote confidence that the rules and processes that underlie our regulation remain fit for purpose.”

The updated input methodologies will be used for the next reset of the default price-quality paths for electricity distribution businesses in 2025 and for natural gas pipelines from 2026 onwards.

The commission is also due to start a targeted review of the information that electricity lines companies are required to publicly disclose about performance and a range of other key areas under Part 4 of the Commerce Act.

The input methodologies review and other related work comes after the Climate Change Commission published its final advice to government and is starting ahead of the Government’s response to that advice in the form of the first Emissions Reduction Plan due in May.