Transpower New Zealand Ltd March 2005 Oral Submission to the Commerce Commission: Information Disclosure and Asset Valuation Choice Transpower New Zealand Ltd March 2005

Oral submission structure Asset valuation choice Key points Information disclosure Information Disclosure and Asset Valuation Choice, March 2005

Asset valuation choice

Key points on valuation choice: Draft decision on IHC Transpower does not contest the draft decision that the choice of valuation methods be limited to ODV and indexed historic cost (IHC) The rationale for Transpower adopting an HC-based methodology is compelling and unconnected to issues that may impact valuation options or choices relevant to other lines businesses Transpower urges the Commission to conclude this process as soon as practicable continuing uncertainty now creates the risk of inconsistency with the evolving Electricity Commission regime Information Disclosure and Asset Valuation Choice, March 2005

Key points on valuation choice: Alignment of regimes Draft decision should be modified to recognise explicitly the need to coordinate the threshold regime and Part F In particular, the final decision should recognise explicitly that the Grid Investment Test (GIT) as the sole test for establishing the prudency and efficiency of transmission investment Information Disclosure and Asset Valuation Choice, March 2005

Information Disclosure

Key points on information disclosure Integrated development Transpower falls under the ambit of both the Commerce Commission and the Electricity Commission Transpower is concerned to ensure that this overlap does not create inefficiencies and unnecessary compliance costs Where the objective of Information Disclosure has been addressed under Part F of the EGRs no further information disclosure requirement should be imposed Information Disclosure and Asset Valuation Choice, March 2005

Key points on information disclosure Comparability Transpower is a unique business in the New Zealand electricity industry its performance measures are quite different to those used by distribution lines businesses separate approach to the design of the information disclosure regime for transmission Information Disclosure and Asset Valuation Choice, March 2005

Key points on information disclosure Financial disclosures Departures from GAAP should be kept to a minimum regulatory financial measures that depart from GAAP are likely to be subjective, difficult to implement and therefore costly to apply Focus should be on asset valuation and a statement of financial performance regulatory balance sheets and cash flow statements are likely to involve arbitrary apportionments of GAAP balances Information Disclosure and Asset Valuation Choice, March 2005

Key points on information disclosure Quality measures Key objective should be integration with the Part F regime Transpower refers the Commission to the ACCC “Service Standards Guidelines”, November 2003 Transpower recommends that reliability measures under the existing Information Disclosure regime relating to uneconomic generation be removed Information Disclosure and Asset Valuation Choice, March 2005

Information Disclosure and Asset Valuation Choice, March 2005 Key conclusions Transmission is not comparable to distribution and decisions in respect of valuation and ID should recognise this The key message is the need for the two Commission’s to create explicit coordination between their regimes Most importantly, this applies to prudency testing of investment – where it is “hard to explain” why the same role needs to be performed independently by two Commissions Information Disclosure and Asset Valuation Choice, March 2005