ComCom allows increased electricity network investment

The Commerce Commission says significant investment is required to maintain and upgrade New Zealand’s electricity network during coming years.

It believes the electricity consumer will benefit from its final decisions to increase revenue limits for national grid owner Transpower and local lines companies.

“While the decisions mean there will be an increase in the prices most consumers see in their electricity bills, we also understand the importance of incentivising businesses to invest, improve, and meet consumer demands,” says commissioner Vhari McWha.

“Deferring investment would mean even higher future prices and a network that does not meet consumers’ needs.

“Consumers rightly expect a safe and reliable network and greater investment is required to deliver the capacity and resilience Kiwis demand,” says McWha.

“To help reduce the initial price rise, we have delayed the recovery of some revenue.”

The average household’s monthly electricity bill will rise by about $10 ($120 annually) for the first year of the five-year regulatory period, which starts on 1 April 2025

Without the commission’s decision to spread or ‘smooth’ revenue recovery over a five-year period, consumers could be looking at price increases of around $20 a month, says McWha.

After the first year, consumers can expect monthly bills to increase by an average of about $5 ($55 annually), in each of the remaining four years.

McWha says factors such as a growing population, an increase in extreme weather events, and greater reliance on electricity as a fuel for uses like transport and industrial process heat, continue to test the capacity and resilience of the country’s electricity network.

“With much of New Zealand’s electricity grid built decades ago, renewal work is essential to meet the future needs of consumers,” she says.

“The revenue increases reflect the higher costs companies are facing, including the cost of borrowing, cost of materials and inflationary pressures since the last revenue review in 2019.

“Higher inflation and interest rates relate to about 55% of the increase in revenues.”

The commission has set Transpower’s maximum allowable revenue at a total of $5.9 billion for the next five years.

This represents an increase of 44% compared to the previous five years.

The commission says its decision to smooth revenue increases means annual increases are capped at 16% in each of the first two years and 5% for the remaining three years.

In its proposal, Transpower said its work programme was largely driven by the need to replace and renew assets that form the backbone of New Zealand’s electricity grid, says ComCom.

“Upon reviewing Transpower’s proposal, in combination with the advice of the independent expert and the submissions we received on our draft decision, the commission is satisfied Transpower’s proposed expenditure is supported by robust asset management practices and in most cases a demonstrable need,” says McWha.

She says the commission remains concerned Transpower may not be able to recruit the workforce needed to deliver its work programme due to workforce shortages and a high demand for specialist talent.

“We have adjusted Transpower’s expenditure allowance to account for this workforce risk.

“Should Transpower provide evidence that it has recruited the necessary workforce, Transpower will be able to access those funds.”

For local lines companies subject to revenue limits, the commission has set maximum allowable revenues for the five-year period at a total of $11.5 billion.

This represents an increase of 47% in real terms compared to the previous five years. However, revenue smoothing means increases are about 24% on average for the first year, with smaller increases in the remaining four years., says the commission.

Although revenue limits are increasing, McWha says the commission has not allowed for all expenditure forecast by local lines companies, primarily due to uncertainty surrounding the need, timing, and scale of that spend.

”Predicting how growth will unfold across the regions remains a challenge,” she says. “That’s why businesses have the option to come back to us to ask for additional revenue when there is more certainty about the investment, or if an unexpected new demand were to occur – for example if significant new infrastructure was needed to accommodate ferries, buses, or trains converting to electricity.”

The commission has expanded its existing innovation scheme to encourage local lines companies to try new solutions, which have the potential to deliver lower consumer bills in the future. 

“Innovation and efficiency will play a significant role in the transition to increased electrification, helping to reduce costs and deliver value for money to consumers,” says McWha.

“The ability of local lines companies to apply for this allowance will enable them to think innovatively to help solve network challenges and to make better use of existing infrastructure.”

The commission has also approved costs to enable local lines companies to purchase low-voltage network data from metering companies.

This will provide better information about the service quality consumers receive, and facilitate efficient decisions about investment in and use of the network, says the commission.