1. Summary and analysis of information disclosed by 29 electricity distributors 12 December 2013

2. Overview 2 Today I will cover the following topics. Stakeholder interest in the electricity sector. Our role in information disclosure regulation. Information about asset management. Initial observations on expenditure forecasts.

3. 3 1.Stakeholder interest in the electricity sector

4. 4

5. 5 Market outcomes Other agencies Commerce Commission Electricity distributors Owners of regulated suppliers Consumers Summary and analysis 29 subject to information disclosure regulation Trustees Ministry of Business, Innovation, and Enterprise Customised price-quality paths Default price-quality paths Information disclosure requirements Income beneficiaries Capital beneficiaries Private shareholders Local, district or regional council Energy Trusts of New Zealand Income beneficiaries Consumer representative groups Residential consumers Commercial consumers Industrial consumers Gentailers 17 subject to price-quality regulation EECA Dept. of Labour EGCC Electricity Authority Treasury Electricity Networks Association Compliance and enforcement Other supplier representatives

6. Stakeholder survey 6 Are you interested in any data analysis of sector performance in the electricity sector?

7. Stakeholder survey (cont.) 7 In general, based on the information currently available, how would you rate your understanding of the performance of electricity sector companies?

8. 8 2. Our role in information disclosure regulation

9. Information disclosure regulation 9 Under Part 4 of the Commerce Act 1986, 29 electricity distributors are subject to information disclosure regulation.

10. Increased transparency 10 Information disclosure regulation ensures sufficient information is readily available to assess whether the purpose of Part 4 is being met in each market

11. Areas of interest 11 The purpose of Part 4 is to promote the long-term benefit of consumers, by promoting outcomes that are consistent with outcomes produced in competitive markets, such that suppliers: have incentives to innovate and to invest, including in replacement, upgraded, and new assets; have incentives to improve efficiency and provide services at a quality that reflects consumer demands; share with consumers the benefits of efficiency gains in the supply of the regulated goods or services, including through lower prices; and are limited in their ability to extract excessive profits.

12. Each distributor is required to publicly disclose information on their website. The information includes: in March, forecast information such as an asset management plan, financial and operational information, and their pricing methodology; and in August, historical financial and operational information. Disclosure requirements 12

13. Under Part 4, we are required to publish summary and analysis of the information disclosed by distributors Role of summary and analysis 13 The purpose of summary and analysis is to promote a greater understanding of the performance of each distributor, their relative performance, and the changes in their performance over time

14. 14 3. Information about asset management

15. One way in which a well-managed distributor can demonstrate good performance is through well-documented asset management processes Asset management information 15

16. For a number of years, each distributor has disclosed their ‘Asset Management Plan’— The principal document that drives their asset management decisions Principal planning document 16 Four key elements of asset management

17. Expenditure forecasts, reconciliation and assumptions. Network development planning. Service levels. 2011 Compliance review 17 In 2011, Parsons Brinckerhoff undertook a targeted compliance review of 3 parts of each Asset Management Plan. Source Commerce Commission, Compliance review of electricity distibution businesses’ Asset Management Plans for the period beginning 1 April 2011, 20 October 2011, p. 3.

18. In March 2013, distributors were required to disclose an Asset Management Plan for the first time since the disclosure requirements were revised in 2012 March 2013 disclosures 18

19. 19 4. Initial observations on expenditure forecasts

20. 20 Forecast change in annual average expenditure (%) 2014-18 vs 2010-13

21. Capital expenditure 21 Capital expenditure ‘Asset replacement and renewal’ is generally the category that is forecast to increase more than any other category (increase for 24 distributors, largest increase for 14 distributors) Other categories are forecast to grow more for certain distributors; the most notable being: ‘system growth’ (15/5) ‘reliability, safety, and environment’ (16/5)

22. Operating expenditure 22 Operating expenditure ‘Systems operations and network support’ is generally the category that is forecast to increase more than any other category (increase for 21 distributors, largest increase for 15 distributors) Other categories are forecast to grow more by certain distributors; the most notable being: ‘routine and preventative maintenance’ (16/6) ‘asset replacement and renewal’ (17/2)

23. Explaining variation 23 To help explain variation in the information disclosed by distributors, we were interested in what our existing analytical approaches could tell us In a price setting context, we developed a relatively low cost model to forecast operating expenditure, and we compared the predictions of that model to forecasts from 16 distributors

24. Any questions 24