Transpower indicated its preference to resolve its breaches of the thresholds 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.
Transpower's existing price path threshold was replaced with three alternate thresholds until 30 June 2011. The quality threshold was retained, and Transpower's price increase announced for April 2006 and subsequent years was reduced.
More specifically, the three new thresholds included:
- a new 'transmission revenue requirement' threshold. This threshold effectively set the process, principles and limits that Transpower was required to adhere to when setting its annual revenue requirement. This threshold incorporate 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 set the process and constraints by which an annual level of capital expenditure would be approved in advance; and
- a new system operator services threshold. The new system operator services threshold reflected the terms of the contract between Transpower and the Electricity Commission (System Operator Service Provider Agreement).
The purpose of the three thresholds was to provide clear principles and limits that Transpower was 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 represented significant saving to consumers and ensured that Transpower had 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.
