NEW ZEALAND GAZETTE, No. 5

20 JANUARY 2011

methodologies as set out in section 52R of the Act and meet the purpose of Part 4 of the Act, as set out in section 52A of the Act, and that no materially better alternatives have been proposed during the consultation process.

4.4 More comprehensive detail of the background and analysis to support these reasons for determining the input methodologies is set out in the Input Methodologies (Transpower) Reasons Paper, 22 December 2010 ("Reasons Paper").

5. How the Determination is publicly available

5.1 Copies of the Determination and the Reasons Paper are available for inspection free of charge at the Commission (during ordinary office hours), on the Commission’s website at www.comcom.govt.nz, or for purchase at a reasonable price at the Commission, 44 The Terrace, Wellington.

Dated at Wellington this 20th day of January 2011.

COMMERCE COMMISSION.

Explanatory Note

The Commerce Amendment Act 2008 introduced changes to the Commerce Act 1986 ("Act"), including a requirement for the Commerce Commission ("Commission") to determine up-front input methodologies that apply to regulated services, to the extent applicable to the type of regulation under consideration.

The purpose of input methodologies is to promote certainty for suppliers and consumers in relation to the rules, requirements, and processes applying to the regulation, or proposed regulation, of goods or services under Part 4 of the Act.

The purpose of Part 4, as set out in section 52A of the Act, is to promote the long-term benefit of consumers in markets where there is little or no competition and little or no likelihood of a substantial increase in competition, by promoting outcomes that are consistent with outcomes produced in competitive markets such that suppliers of regulated goods or services:

(a) have incentives to innovate and invest, including in replacement, upgraded, and new assets; and

(b) have incentives to improve efficiency and provide services at a quality that reflects consumer demands; and

(c) share with consumers the benefits of efficiency gains in the supply of the regulated goods or services, including through lower prices; and

(d) are limited in their ability to extract excessive profits.

In accordance with section 54S of the Act, the Commission will determine an input methodology for Transpower’s capital expenditure proposals by 1 November 2011 (or by any extended deadline granted by the Minister of Commerce pursuant to that section).

Commerce Act (Summary of Electricity Distribution Services Input Methodologies Determination) Notice 2011

Pursuant to Part 4 of the Commerce Act 1986 ("Act"), the Commerce Commission ("Commission") gives the following notice.

Notice

1. Title—This notice is the Commerce Act (Summary of Electricity Distribution Services Input Methodologies Determination) Notice 2011.

2. Electricity distribution services input methodologies determination

2.1 On 22 December 2010, the Commission made the Commerce Act (Electricity Distribution Services Input Methodologies) Determination 2010 ("Determination").

2.2 The Determination sets out the input methodologies that apply to the supply of electricity distribution services, as that term is defined in the Determination ("Electricity Distribution Services") for the purpose of information disclosure regulation and default/customised price-quality regulation, as required by Part 4 of the Act.

2.3 In accordance with section 52W(2) of the Act, this notice is published as a brief description of the nature of each input methodology and the goods or services to which it applies. It includes the reasons for determining the methodologies and how the methodologies are publicly available.

3. Nature of the input methodologies and the goods or services to which they apply

The following input methodologies apply to Electricity Distribution Services:

(a) Cost of capital (an approach to calculating a weighted average cost of capital by applying a specified methodology that includes certain fixed parameters, and an approach to calculating a term credit spread differential); and

(b) asset valuation (an approach to calculating the value of the initial regulatory asset base and how this is rolled forward over time, including rules regarding depreciation and revaluation of assets); and

(c) cost allocation (three complementary approaches to allocating costs that are “not directly attributable” between each type of regulated service, and between the regulated and unregulated services (in aggregate)); and

(d) treatment of taxation (a modified deferred tax approach to calculating a tax allowance for regulatory purposes); and

(e) regulatory processes and rules relating to:

(i) specification of price (which includes that maximum prices or revenues will be specified by a weighted average price cap, and identifies any costs that can be passed through to prices); and

(ii) amalgamations (which specifies how certain amalgamations between regulated suppliers will be treated under price-quality regulation); and

(iii) incremental rolling incentive scheme (an approach that allows regulated suppliers to retain efficiency gains in controllable operating expenditure across regulatory periods); and

(iv) reconsideration of a default price-quality path (the circumstances in which a default price-quality path may be reconsidered within a regulatory period); and