1. Question and answer session
Gas DPP 2017 reset
August 2016 policy paper
Question and answer session
10 am, 14 September 2016 #

2. Agenda Purpose of today’s session Overview of August policy paper
Quality of service (20 minutes)
CPRG (20 minutes)
Supplier-based expenditure forecasting (30 minutes)
Other policy paper topics (20 minutes)
Next steps (10 minutes)

3. Purpose of today’s session
Go over key points from policy paper
Answer any questions to assist with preparation of submissions
Confirm next steps in the IM review and Gas DPP reset process

4. Overview of August policy paper
In scope
Regulatory framework
Non-IM-related topics, such as supplier forecasting, quality of service, CPRG, productivity
Out of scope
IM-related issues, such as form of control, pricing methodologies, WACC, asset beta, asset lives

5. Quality of service Interruptions standard
High level of ‘business as usual’ reliability
Major interruptions an area of concern
Reporting obligation with the possibility of further enforcement
Response times to emergencies
Propose retaining existing standard
- Ultimately, what we want to achieve is an industry where risks are minimised or mitigated in the most cost effective way.
- That depends on businesses having sound asset management strategies, and for the costs of doing so to be met by consumers.
- On the other hand, HILP risk can never be completely eliminated (even if possible, it won't always be cost effective).
- For situations where significant disruptions do occur, it is better to have a pre-deterimed regulatory response to identify what happens and why, than a reactive approach responding to the particular circumstances, potentially in counter productive ways.

6. Constant price revenue growth
We plan to apply the same fundamental approach
Early exposure CPRG model on website
Tailor CPRG forecasts to better reflect operating environments of individual GDBs
Supplier’s geographic footprint
GasNet Tauranga investment
We have assumed the Draft IM Review Form of Control decisions

7. Constant price revenue growth
[TBC: notes outlining details behind this: assumptions, data sources, etc.]

8. Constant price revenue growth
[TBC: notes outlining details behind this: assumptions, data sources, etc.]

9. Expenditure objective
Supplier-based expenditure forecasting
Key considerations
Tailoring
Low-cost
Proportionate scrutiny
Incentives
Applicability
Transparency
Expenditure objective
Expenditure reflects the efficient costs that a prudent non-exempt business would require to meet demand
CPP alignment
Low cost assessment
Assessment framework
Compliance
BAU variance check
AMP scrutiny
Supplier scrutiny Decision

10. Draft expenditure assessment framework
AMP Scrutiny
Decision
Compliance
BAU Variance Check
Allowable expenditure
(within BAU variance or explained/justified)
CapEx
Variance within BAU range
+/- % of previous year
Qualitative assessment
Variances fully justified and clearly explained in AMP
Excluded expenditure
(unsupported non-BAU reverts to an extrapolation of ID actuals)
Quantitative assessment
Historical trend, metrics and ratios
Variance outside BAU range i.e. non-BAU
+/-% of previous year
Qualitative assessment
Variances not supported and clearly explained in AMP
CPP recommendation
(expenditure requires greater level of scrutiny)
Supplier ID & AMP
Compliance checks
Variance within BAU range
+/-% of Step-and-Trend
Supplier Scrutiny
Qualitative assessment
Variances fully justified and clearly explained in AMP
Quantitative assessment
Step-and-Trend, metrics and ratios
Supplier explanation
Supplier provides necessary information to explain/justify BAU variance. We expect this will comprise pre-existing information, such as board papers and business cases.
Variance outside BAU range i.e. non-BAU
+/-% of Step-and-Trend
Qualitative assessment
Variances not supported and clearly explained in AMP
OpEx

11. Other topics Compliance, eg, major transaction provisions
First Gas merger
GasNet expansion
Modelling and data
Productivity/X-factor
Process

12. Next steps Process update – 14 September 2016
IM review
Process update – 14 September 2016
Technical consultation – October 2016
Final decision – December 2016
Gas DPP reset
Policy paper – submissions due 28 September 2016, cross- submissions due 12 October 2016
Draft decision – February 2017
Technical consultation – TBD
Final decision – end May 2017

14. Forecast Variance and reliability
Variance boundary can be set to reflect the Commission’s view of a reasonable level of variation that does not require explanation
The information is also displayed on a bar chart for faster referencing and comparison across multiple prediction pairs (e.g comparing the 2013 – 14 variance with the 2014 – 15 variance)

15. Additional granular metrics and ratios provide context for expenditure
Chart features are controlled by the dashboard user using drop down boxes
Variable Line chart can show Capex and Opex changes alongside changes in Network, ICPs or Gas Supply