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Industry update

Industry update. ETNZ Spring Conference Bob Thomson & Alan Jenkins 3 November 2011. What’s happening?. Commerce Commission Lost Vector challenge on whether starting price adjustment process should be an input – appealing.

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Industry update

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  1. Industry update ETNZ Spring Conference Bob Thomson & Alan Jenkins 3 November 2011

  2. What’s happening? • Commerce Commission • Lost Vector challenge on whether starting price adjustment process should be an input – appealing. • Facing appeals on the other inputs (asset valuation, cost of capital, tax treatment, allocation of common costs, etc – including “regulatory processes and rules, such as …the specification and definition of prices….”)

  3. The ComCom Appeal High Court judgement (para 122): • It is difficult to see how…[the bit on “Regulatory processes and rules”] does not specifically require a [starting price adjustment input methodology].…By my assessment, that is the fairly obvious interpretation….

  4. …Commerce Commission • Price control on hold (depending on court ruling on how to proceed), with scope for further delays from appeals on appeals. • Legal costs rising - $9 million budgeted but wanted more than double that, ….? • Legislation? Retroactive legislation unpalatable….. • Pushing ahead with information disclosure!

  5. A recent regulatory insight

  6. Information disclosure: purpose • Suppliers to learn from their peers • Consumer awareness of price and quality data • Shareholders & investors make sensible investment decisions • The Commission to better manage price & quality regulation

  7. Information Disclosure: Process • Expenditure! • Info on what money is spent on (asset type, allocation of corporate overheads, vegetation control, inspection, management, fault management…)? • Financial disclosure & AMPs • Hopefully less demanding (biennial AMPs? Less frequent Board sign-off requirements)

  8. ….Process • “Assessing relative Efficiency” • Benchmarking companies against each other • Planning to publish their analyses of data but don’t want to have this driving how businesses run themselves • Comparisons of unit costs and forecast costs (e.g. of planned km of new lines)? • Want to understand trade-offs of OPEX for CAPEX

  9. ….Process • “Discussion needed on whether analysis should identify the benefits, if any, of a reduced number of electricity distributors.” [Note that mergers seemed to slow as regulatory burden increased]

  10. And then there’s the Electricity Authority • ‘Recent EA strategy forums have come up with a range of suggestions, some (but not necessarily all) of which will be considered as the work programme evolves: More attention to promotion of positive developments and achievements Review adverse events arrangements Reducing barriers to innovation in the Code Review the number of lines companies Review the low fixed charges regime’

  11. An efficient, innovative economy? • Not what regulators focus on: • 800-to-1000 page process documents • No pass-through of R&D expenditure by regulated companies • Extensive information disclosure requirements that no-one wants to read • Never-ending waves of consultation • Lawyers looking at everything in case of appeals

  12. Regulation divorced from politics? • Electricity Commission changed then replaced • Strange saga of ComCom’s Wolack Report • Bottom line injunctions to Electricity Authority: • Rural distribution costs same as urban • Low fixed-charges • Bottom line injunctions to ComCom: • Must not create energy efficiency disincentives • Must create efficiency incentives

  13. Some of those injunctions have teeth • .

  14. Others just there for appearance? • .

  15. Commerce Act provides scope for reform to overcome disincentives “The Commission must promote incentives, and must avoid imposing disincentives, for suppliers of electricity lines services to invest in energy efficiency and demand side management, and to reduce energy losses...” • The tools are there but ComCom so far preferring orthodox control, not forward looking innovation.

  16. How to move forward Relying on ComCom, Electricity Authority to keep moving forward? An Industry Initiative? Regulatory review?

  17. …letting regulation take its course? • Commerce Commission required to promote loss reduction, DSM, efficiency: • Very slow progress so far (none!) • Terrified of creating loopholes? • Electricity Authority required to make market more effective: • Doesn’t seem to believe in market failures • Very focussed on energy, not infrastructure

  18. …an Industry Initiative? An important year ahead for communicating • A few things we are looking at: Smart Networks Cost-Reflective Pricing Collaborative efficiency programme • Joint purchasing • Increased standardisation • Insurance risk sharing?

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