In December 2005 the Commerce Commission (the Commission) announced its intention to declare control of Transpower’s transmission services for breaches of its regulatory thresholds.  Following this announcement, Transpower indicated its preference to resolve the situation through an administrative settlement.  After consultation and discussion, the Commission published in October 2007 its preliminary decision not to place Transpower’s transmission services under regulatory control.

After consultation with interested parties and further dialogue with Transpower, on 13 May 2008  the Commission published its decision to accept a settlement offer provided by Transpower.  The offer is that Transpower’s existing price path threshold be replaced with three alternate thresholds until 30 June 2011, that the quality threshold be retained, and that the price increase announced for April 2006 and subsequent years be reduced.

More specifically, the three new thresholds include:

• a new ‘transmission revenue requirement’ threshold.  This threshold effectively sets the process, principles and limits that Transpower is required to adhere to when setting its annual revenue requirement.  This  threshold incorporates the outcome of the new Transmission Non Part F capital expenditure threshold into the formula for setting Transpower’s annual revenue requirement;
• a new Transmission (Non-Part F) capital expenditure threshold. This threshold sets the process and constraints by which an annual level of capital expenditure will be approved in advance; and
• a new System Operator services threshold. The new System Operator services threshold reflects the terms of the existing contract between Transpower and the Electricity Commission (System Operator Service Provider Agreement).

The purpose of the three thresholds is to provide clear principles and limits that Transpower is required to adhere to in order to determine its revenue requirements, capital requirements and adherence to the terms of the relevant systems operator services agreement.

The settlement represents significant saving to consumers and ensures Transpower has the incentive to undertake the investments necessary to maintain the national grid.

The Commerce Amendment Act 2008 preserved the settlement, with the relevant provisions set out  under subpart 9 of Part 4 of the Commerce Act 1986.