Summary and Analysis of Disclosure by Electricity Distributors

1. Summary and analysis of information disclosed by 29 electricity distributors 12 December 2013

2. Overview Today I will cover the following topics. • Stakeholder interest in the electricity sector. • Our role in information disclosure regulation. • Information about asset management. • Initial observations on expenditure forecasts.

3. Stakeholder interest • in the electricity sector

5. Income beneficiaries Information disclosure requirements Summary and analysis Residential consumers Electricity Authority Ministry of Business, Innovation, and Enterprise Dept. of Labour Consumer representative groups Commercial consumers Default price-quality paths EECA Industrial consumers EGCC Gentailers Treasury Customised price-quality paths Compliance and enforcement Energy Trusts of New Zealand Private shareholders 29 subject to information disclosure regulation 17 subject to price-quality regulation Trustees Local, district or regional council Electricity Networks Association Other supplier representatives Capital beneficiaries Income beneficiaries

6. Stakeholder survey Are you interested in any data analysis of sector performance in the electricity sector?

7. Stakeholder survey (cont.) In general, based on the information currently available, how would you rate your understanding of the performance of electricity sector companies?

8. 2. Our role in information disclosure regulation

9. Information disclosure regulation • Under Part 4 of the Commerce Act 1986, 29 electricity distributors are subject to information disclosure regulation.

10. Increased transparency • Information disclosure regulation ensures sufficient information is readily available to assess whether the purpose of Part 4 is being met in each market

11. Areas of interest • The purpose of Part 4 is to promote the long-term benefit of consumers, by promoting outcomes that are consistent with outcomes produced in competitive markets, such that suppliers: • have incentives to innovate and to invest, including in replacement, upgraded, and new assets; • have incentives to improve efficiency and provide services at a quality that reflects consumer demands; • share with consumers the benefits of efficiency gains in the supply of the regulated goods or services, including through lower prices; and • are limited in their ability to extract excessive profits.

12. Disclosure requirements Each distributor is required to publicly disclose information on their website. The information includes: • in March, forecast information such as an asset management plan, financial and operational information, and their pricing methodology; and • in August, historical financial and operational information.

13. Role of summary and analysis • Under Part 4, we are required to publish summary and analysis of the information disclosed by distributors • The purpose of summary and analysis is to promote a greater understanding of the performance of each distributor, their relative performance, and the changes in their performance over time

14. 3. Information about asset management

15. Asset management information • One way in which a well-managed distributor can demonstrate good performance is through well-documented asset management processes

16. Principal planning document • For a number of years, each distributor has disclosed their ‘Asset Management Plan’—The principal document that drives their asset management decisions Four key elements of asset management

17. 2011 Compliance review • Expenditure forecasts, reconciliation and assumptions. • Network development planning. • Service levels. • In 2011, Parsons Brinckerhoff undertook a targeted compliance review of 3 parts of each Asset Management Plan. Source Commerce Commission, Compliance review of electricity distibution businesses’ Asset Management Plans for the period beginning 1 April 2011, 20 October 2011, p. 3.

18. March 2013 disclosures • In March 2013, distributors were required to disclose an Asset Management Plan for the first time since the disclosure requirements were revised in 2012

19. 4. Initial observations on expenditure forecasts

20. Forecast change in annual average expenditure (%) 2014-18 vs 2010-13

21. Capital expenditure • ‘Asset replacement and renewal’ is generally the category that is forecast to increase more than any other category (increase for 24 distributors, largest increase for 14 distributors) • Other categories are forecast to grow more for certain distributors; the most notable being: • ‘system growth’ (15/5) • ‘reliability, safety, and environment’ (16/5) Capital expenditure

22. Operating expenditure • ‘Systems operations and network support’ is generally the category that is forecast to increase more than any other category (increase for 21 distributors, largest increase for 15 distributors) • Other categories are forecast to grow more by certain distributors; the most notable being: • ‘routine and preventative maintenance’ (16/6) • ‘asset replacement and renewal’ (17/2) Operating expenditure

23. Explaining variation • To help explain variation in the information disclosed by distributors, we were interested in what our existing analytical approaches could tell us • In a price setting context, we developed a relatively low cost model to forecast operating expenditure, and we compared the predictions of that model to forecasts from 16 distributors

24. Any questions