Review of 2006/07 electricity asset management plans

The Commerce Commission has today released a summary report of its review of the 2006/07 asset management plans of electricity lines businesses. Electricity lines businesses are required to disclose their asset management plans under the Electricity Information Disclosure Requirements (2004).

The summary report was prepared by Parsons Brinkerhoff Associates (PBA) on behalf of the Commission. The Commission has considered the report and has adopted its findings. The report compares each of the lines businesses' plans and identifies areas where improvements can be made.

Key findings of the review include:
 the quality of the asset management plans submitted by lines businesses was variable;
 areas of the plans with the greatest potential to improve are service levels (which includes target setting, with relevant justification, for consumer oriented services, and asset performance and efficiency) and performance evaluation (which includes details of how performance against targets will be measured, evaluated and improved);
 inadequate forecasts for future capital and maintenance expenditure by some lines business are cause for concern – some businesses did not include forecasts, whilst others did not address the entire planning period;
 an analysis of the disclosed plans, assessing them against compliance with the disclosure requirements and best practice, ranked The Lines Company, Orion, WEL Networks, Scanpower, The Power Company, Northpower, and Top Energy as the highest performing lines businesses;
 lines businesses with greatest room for improvement are Alpine Energy, Electra, and Mainpower; and
 compared with the results of the 2005/06 review of asset management plans, line businesses that made the most significant improvements included The Power Company, Top Energy, Electricity Invercargill, and Otagonet.

Commerce Commission Chair Paula Rebstock said she was pleased with the progress that some lines businesses were making towards best practice in asset management planning but noted that substantial progress still needed to be made by many lines businesses in critical areas. This is reflected in PBA's concerns regarding the reporting of service levels and performance evaluation, highlighted as specific areas that many electricity lines businesses need to address.

"The Commission sees the setting of service levels and the measurement of performance against those levels as fundamental to sound asset management planning. Service targets should be clearly established, with decisions on asset management aligned to achieve those targets. Monitoring and evaluating performance against those targets provides important feedback to planning processes."

"Disclosure of these plans not only provides evidence of asset management planning practices being applied within particular electricity lines businesses but also provides an opportunity to compare and evaluate the performance of asset management plans across all lines businesses."

"Unlike other jurisdictions, electricity lines businesses do not require prior approval of investments under the New Zealand thresholds regime. Transparency and accountability in asset management planning assumes critical importance, as the plans signal companies' investment intentions. The availability of information in asset management plans provides consumers with an important safeguard to ensure businesses are making the right ongoing investment decisions on their behalf," said Ms Rebstock.

"This is why the Commission is required to gather such information and make it publicly available."

A copy of the report, as well as related documentation regarding disclosure requirements is available on the Commission's web site www.comcom.govt under IndustryRegulation/Electricity/ElectricityLinesBusinesses/Informationdisclosure


Background

The review was carried out to ascertain the level of compliance with the Electricity Information Disclosure Requirements (2004) and assesses the extent to which the asset management practices of New Zealand electricity lines businesses are consistent with industry best practice.

The need for reliable and timely disclosure of information in asset management plans is reflected in the purpose statement in section 57T(1) of the Commerce Act 1986. Section 57T(1) states:

The purpose of this subpart is to promote the efficient operation of markets directly related to electricity distribution and transmission services by ensuring that large line owners and large electricity distributors make publicly available reliable and timely information about the operation and behaviour of those businesses, so that a wide range of people are informed about such factors as profits, costs, asset values, price (including terms and conditions of supply), quality, security, and reliability of supply of those businesses.

The criteria for assessing the asset management plans were a series of questions framed on Requirement 24 and Schedule 2 of the Electricity Information Disclosure Requirements (2004) and explanatory guidance material in Chapter 4 of the Electricity Information Disclosure Handbook (2004). This process involved subjective judgment and intended to provide an indication of the overall level of AMP quality; in some cases this review assesses plans beyond what are strictly regulatory requirements.