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The safety net facility protects consumers by preventing high prices over Regulatory Control Periods (RCP). This provision ensures fair capital expenditure allowances, incentivizing accurate forecasting and prudent planning by energy companies. Reopening capex allowances and adjustments to Maximum Allowable Revenue (MAR) during RCP are possible under the safety net. Similar to the UK model, Ofgem's discretion in reopening revenue determinations serves as a useful comparison. This provision could trigger upon a significant underspend over a rolling two-year period or in any single year. Implementing a safety net aims to balance consumer protection and efficient infrastructure investment in the energy sector.
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The need for a safety-net • The key purpose of a safety net is to protect consumers from higher than necessary prices over the RCP • Applies to minor capital expenditure allowance • The Commission is considering a safety net because: • Ultimately a wash up will not be used* • Over the term of the settlement Transpower has not been able to demonstrate accurate forecasting of its capital expenditure • The Commission considers that the safety net would place incentives on Transpower to improve the accuracy of its planning and not inflate its proposed expenditure levels * a safety net and a wash up may act in a similar way to protect consumers, a key difference is that a safety net would only apply to correct under, and not over, spending.
Safety-net facility • If the actual spend during the RCP falls materially below the level of the Capital Expenditure Allowances then the Commission may, at its discretion, reopen the Capital Expenditure Allowance(s) for any year(s) during the RCP • The Commission will undertake a review and, if necessary, make adjustments to the MAR during the RCP.
A safety net option • A safety net is used in the UK • Triggered in the event annual expenditure is more than 20% below the capex allowance for that year • Ofgem has discretion as to whether to reopen the revenue determination • A NZ safety net provision could apply where the following occurs: • X% under-spend, of the annual expenditure allowances (total Grid Asset, IST, and by Asset Group) across both years, over a rolling 2 year period, or • X% under-spend of the (total, Grid Asset, IST, and by Asset Group) annual expenditure allowance in any one year.
