1. Large Projects proposed approach

2. Large projects proposed approach
Purpose of the session is to provide an overview of the proposed process for approval of a capital expenditure allowance for large projects
The overview sets out the approach intended to apply in the longer term, transitional mechanisms that may apply are discussed in the next session

3. Large projects proposed approach
Key points to be covered are:
Proposed ex-ante approach
Treatment of contingent projects
Treatment of emerging projects
Use of wash ups

4. Governance and Management Engineering and technical
The Commission’s focus is at the business case level for large projects and at the qualitative governance and management level for minor projects
Service level obligations
Governance and Management
Policies, strategies and procedures that deliver services required at least cost
Business management
Assessment and approval of
expenditure plans and variations
Expenditure plans
Large Projects
Projects subject to an investment test commensurate on the size of project
Expenditure plans
Minor Projects
Engineering and technical
Asset management
planning and implementation
Asset management data (condition, age, network loadings and performance etc.)

5. Overview of the proposed review process
Large projects
Contingent projects and emerging projects are assessed on an individual basis at the end of the RCP. Contingent projects are included in a wash up.
Prior to the regulatory period, Transpower provides
large project and contingent project lists and supporting documentation
Assessment considers Transpower’s application of the investment test and compliance with other relevant policies on an individual project basis
Approval of individual large projects on ex-ante basis for inclusion in the Maximum Allowable Revenue (MAR)
Individual
Project
Allowances

6. Large Projects - summary
Large projects includes both RRE and IST
Expectation that projects will be able to be submitted ex-ante but acknowledgement that some may emerge during the RCP
Demonstration that projects have been subject to an investment test (commensurate with project size)*
Demonstration that appropriate policy and processes (e.g. procurement) have been complied with/completed
* Under the proposed Electricity Industry Bill the GIT is to be applied until the Commission has developed a new input methodology. 6

7. Large Projects – summary (continued)
Contingent projects and triggers are to be identified ex-ante
Wash up provisions included (note: only contingent projects included in wash up)
Emerging projects will not be included in the wash up but will be included in the RAB and MAR for the subsequent RCP
Expenditure approval is project specific
Projects can be submitted at any time during the RCP**
Large projects that are not commissioned in the period they are forecast to be are included in the wash up
** Contingent projects and emerging projects approved during the RCP, can be included in the RAB once commissioned and therefore in the MAR in the following RCP. Wash up provisions only apply to contingent projects. 7

8. Large projects proposed approach
Ex-ante project detailed information
Submitted over a period and not immediately prior to RCP
Individual project
assessment
Individual project approval (ex-ante)
Approved projects that have successfully completed an investment test accepted for inclusion in the MAR
MAR – and wash up
Project approved expenditure included in MAR
Wash up provisions to adjust for legitimate under and over spend.
Projects not commissioned in the RCP included in the wash up
Contingent
project list and triggers
Submitted over a period and not immediately prior to RCP
Contingent project list
assessment
Wash up provision
Approved contingent projects undertaken during RCP included in the RAB used to establish the MAR in subsequent RCP with financially neutral wash up
Individual contingent project approval
Contingent projects that have successfully completed investment test during the RCP
Emerging projects
Projects that have completed required process stages and approvals during the RCP but were not approved ex-ante and are not contingent projects
Individual project approval
Projects that have successfully completed investment test accepted for inclusion in the MAR
No wash up
Approved emerging projects accepted for inclusion in the RAB which is to be used to establish the MAR in subsequent RCP 8

9. Discussion