Networks Pricing - 2004 Reset
In the lead-up to the
commencement of the second regulatory control period (the five-year period
commencing 1 July 2004), the Code requires the Commission as regulator - in
consultation with interested parties - to review the price regulation
methodology used in the first regulatory control period with a view to modifying
the methodology as appropriate. The Commission refers to this review and
consideration of the price regulation methodology to apply from 1 July 2004 as
the "2004 Regulatory Reset".
Price regulation methodology
involves the practical and technical detail for the administration of price
regulation over which the Commission as regulator has a degree of discretion.
Accordingly, the Commission undertook this review in two stages – Stage 1
focussed on methodology issues, while stage 2 considered the issues that arise
from implementation of the preferred methodologies.
The Commission released its
Final Determination of parameters necessary to give practical effect to its
methodology decision in February 2004..
Methodology
Matters consequential to
2004 Regulatory Reset
In the Commission's 2004
Reset Determination, provision was made for a once-off adjustment to the value
of the network price cap if it was found that a material error had been made
in the regulatory asset values used in the Reset price cap formula.
The Commission has released its Final Decision
relating to these asset valuation matters.
Network Tariff Pricing
Principles and Methods
The Code assigns responsibility
for determining the pricing structure that best gives effect to the pricing
objectives of the Code to the network provider. Prior to the commencement of
each regulatory control period, the network provider must provide the regulator
with a draft statement setting out the details of principles and methods to be
used for defining individual standard network access services to be supplied by
the network provider and for establishing the reference tariffs to apply to
those services. The regulator must approve the statement for use by the network
provider unless, in the opinion of the regulator, the statement is not
consistent with the principles and objectives set out in the Code.
In light of Power and Water’s
decision not to change the tariff structures in the 2004-05 year, the Commission
approved the 2004-05 tariffs against the existing approved Pricing
Principles Statement (approved on 25 August 2000). The Commission considered
this appropriate given Power and Water’s stated intention to more fully consider
changes to the structure of network tariffs over the coming 12 months, with
revised pricing ‘principles and methods’ to be developed in conjunction with
this process.
The Commission advised that it
would only
approve any changes to the structure of Power and Water’s network access tariffs
once a revised Pricing Principles and Methods Statement is approved. The
Commission will only approve a revised Statement that provides a rigorous and
transparent basis for any rebalancing associated with the move to the price cap
form of price control.
Pursuant to clause 75(S) of the Code, in
October 2005, Power and
Water submitted a revised Draft Pricing Principles Statement to the
Commission for approval.
Following a period of public consultation, the
Commission has approved the Pricing Principles Statement for use by Power and
Water during the second regulatory control period.
Network Tariffs
The Commission decided to adopt
a price cap form of regulation based upon a tariff basket in the second
regulatory control period (rather than continue with the revenue cap approach
used in the first regulatory control period). Hence, the Commission’s price
regulation will be based on a calculation of each year’s weighted average
network access tariffs.
2008-09
2007-08
2006-07
2005-06
2004-05
Non-Standard Tariffs
The network tariff pricing
principles and methods have been used to set the approved tariffs for standard
customer supply situations where the network capacity, pattern and level of
customer demand, and security of service are of appropriate standard, well
known, and easily measured. The standard tariffs are not directly applicable
where the energy carriage differs markedly from where a customer taking its full
requirements through the network.
In addition, the Commission
recognises that in some, albeit rare, circumstances, discounting of network
tariffs may be appropriate and can be beneficial to the market as a whole.
The Commission has approved the
use of the following frameworks in any future negotiations with embedded
generators and the like, or where discounting of network tariffs may be
appropriate.
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