Vector Electricity Asset Management Plan— 2020 Update
5.7 Appendix G – Schedule 14a Mandatory Explanatory Notes on Forecast Information
This Schedule requires EDBs to provide explanatory notes to reports prepared in accordance with clause 2.6.6. This Schedule is mandatory - EDBs must provide the explanatory comment specified below, in accordance with clause 2.7.2. This information is not part of the audited disclosure information, and so is not subject to the assurance requirements specified in Section 2.8. Commentary on difference between nominal and constant price capital expenditure forecasts (Schedule 11a) In the box below, comment on the difference between nominal and constant price capital expenditure for the current disclosure year and 10 year planning period, as disclosed in Schedule 11a. BOX 1: COMMENTARY ON DIFFERENCE BETWEEN NOMINAL AND CONSTANT PRICE CAPITAL EXPENDITURE FORECASTS Vector has used a capital expenditure inflator based on the model used by the Commerce Commission in its DPP price reset on 1 April 2020. We have used an inflator which is a mix of Capital Goods Price Index (CGPI) and Labour Cost Index (LCI). The weighting between CGPI (50%) and LCI (50%) is based on the current Vector cost structure, i.e. the capital goods component and labour cost component in our CAPEX. The CGPI forecast is 2%, which is based on a 10-year average to June 2019. The LCI forecast is 2%, which is based on a 10-year New Zealand average to June 2019. The constant price capital expenditure forecast is inflated by the above-mentioned index to convert to a nominal price capital expenditure forecast. Commentary on difference between nominal and constant price operational expenditure forecasts (Schedule 11b) In the box below, comment on the difference between nominal and constant price operational expenditure for the current disclosure year and 10-year planning period, as disclosed in Schedule 11b. BOX 2: COMMENTARY ON DIFFERENCE BETWEEN NOMINAL AND CONSTANT PRICE OPERATIONAL EXPENDITURE FORECASTS Vector has used an operational expenditure inflator based on the model used by the Commerce Commission in its DPP price reset on 1 April 2020. We have used an inflator which is a mix of Producer Price Index (PPI) and Labour Cost Index (LCI). The weighting between PPI (40%) and LCI (60%) is as per the Commission’s model. Vector has used the NZIER (New Zealand Institute of Economic Research) December 2019 PPI (Producer Price Index-outputs) forecast up to March 2024. Thereafter, we have assumed a long-term inflation rate of 2.20%. The LCI forecast is 2%, which is based on a 10 year New Zealand average to June 2019. The constant price operational expenditure forecast is inflated by the above-mentioned index to convert to a nominal price operational expenditure forecast.
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