28 FEBRUARY

NEW ZEALAND GAZETTE

541

3. The Government’s expectations in this regard are specified in the objectives and principles for the provision and pricing of transmission services set out in this Policy Statement.

Objectives for the Provision of Transmission Services

4. The Government’s objectives for the provision of transmission services are that:

• the services are provided in a manner consistent with the Government’s policy objective – to ensure that electricity is delivered in an efficient, fair, reliable and environmentally sustainable manner to all classes of consumer;
• the services should be provided at the standards of quality and security required by grid users through a process of agreement with those users, or the Electricity Governance Board (“the Governance Board”) on behalf of users;
• the efficiency of transmission services should be continuously improved so as to produce the services users want at least cost; and
• the services are priced in a manner that:
  • is transparent;
  • fully reflects their costs including risk;
  • facilitates nationally efficient supply, delivery and use of electricity;
  • promotes efficient use of Transpower’s resources; and
  • promotes nationally efficient use of transmission services by grid users and so facilitates efficient resource use.

Responsibilities of Transpower

5. Transpower’s Board is responsible for determining Transpower’s Statement of Corporate Intent (SCI) in consultation with shareholding Ministers on behalf of the Government as owner. The Government expects that the SCI will be consistent with the Government’s objectives (see above) for the provision of transmission services.

6. Transpower’s SCI will also set the key determinants of the overall revenue requirements for Transpower. As owner of Transpower, the Government expects Transpower to recover the full economic costs of its services, including a fair return to shareholders based on commercially acceptable principles for their investment in the transmission system.

7. Transpower’s overall revenue requirements, in common with those for the distribution sector, should be achieved within the constraints of the Government’s regulatory framework for lines.

8. Transpower will be responsible for developing the transmission pricing methodology consistent with the objectives and principles for the provision of transmission services outlined in this document. The Governance Board should ensure that consistency with the objectives and principles has been achieved.

Responsibilities of the Governance Board

9. The Governance Board will have a number of responsibilities in relation to Transpower and all users of the grid. These include:

• ensuring that Transpower’s pricing methodology conforms to the objectives and principles for the provision of transmission services, and that Transpower and Transpower’s customers comply with that pricing methodology;
• ensuring that transmission charges established consistent with the methodology are enforceable on the same basis as other rules set by the Electricity Governance Board;
• determining the standards of common quality and minimum real-time security required from the grid through a process of agreement between grid users and Transpower;
• ensuring that Transpower and all users of the grid comply with those standards; and
• ensuring that Transpower complies with the Government’s principles for system expansion and replacement (see below).

10. The Governance Board may also make recommendations from time to time to the Government (as Transpower’s owner) on any services provided by Transpower that could be made contestable in the interests of efficiency.

11. The Government expects that the Governance Board will undertake these responsibilities in a manner that is consistent with the Government’s objectives for the provision of transmission services (see above).

12. The Government also expects that the Governance Board, as part of its annual report to the Government, will report on the extent to which those objectives are being complied with, and on how (if at all) those objectives could be better met.

13. As a safeguard in case the Governance Board and Transpower are unable to agree on a satisfactory transmission pricing methodology, the Government proposes that a provision be included in legislation to ensure that the Government can empower the Commerce Commission to determine the transmission methodology. If the transmission methodology is established by the Commission, Transpower’s charges would be recoverable as a debt.

Principles for the Provision of Transmission Services

Cost Recovery and Pricing Principles

14. The Government expects transmission services to be priced efficiently, and to this end:

• Transpower should take into account the cost of transmission losses when planning maintenance;
• after allowing for financial losses and costs properly chargeable to the shareholder, Transpower’s charges should recover the full economic costs of its services;
• the costs of connection should as far as possible be allocated on a user pays basis;
• the pricing of new and replacement investments in the grid should provide grid users with strong incentives to identify least cost investment options, including energy efficiency and demand management options;
• pricing for new entrants should provide clear locational signals;
• sunk costs should be allocated in a way that minimises distortions to production/consumption and investment decisions made by grid users; and