ComCom proposals may see power prices drop

An initial price reduction for most electricity consumers is expected following the Commerce Commission’s draft decision on the default price-quality paths (DPPs) it proposes applying to 15 regulated electricity lines companies for 2020-2025.

That’s expected to encourage the switch to electric vehicles with charging costs likely to remain fairly flat.

The DPPs set out the maximum revenue regulated lines companies are allowed to earn from their consumers as well as the minimum quality standards they must meet – measured in terms of outages and interruptions on their networks.

ComCom deputy chair Sue Begg says the stability of the DPP regime is helping to promote long-term investment in critical energy infrastructure that reflects consumers’ needs and expectations.

“Our draft decision allows for increased investment in the network, with lines companies forecasting more than $2 billion will be spent on renewing ageing assets and meeting the energy needs of growing communities over the next five years.

“At the same time the majority of consumers can expect an initial reduction in price, as we have realigned revenues with costs. This means that the total revenue lines companies can earn for the year starting 1 April 2020 would reduce by $50 million compared to the previous year. This reduction is largely due to the lower cost of capital available in the market.”

Following the reduction in revenue in 2020, charges would increase in line with inflation through to 2025.

Submissions close July 18 and a final decision is expected by November 30.

Meanwhile, the commission has also issued its draft decision on the maximum revenue Transpower can earn and the quality standards it must meet under its individual price-quality path (IPP) for 2020-2025.

State Owned Enterprise Transpower owns and operates New Zealand’s national grid, transmitting electricity to local lines companies that distribute it to homes and businesses.

Begg says the commission proposes allowing Transpower to earn forecast revenue of $4.27 billion for the next five years, a reduction of 9.8% or over $460 million compared to its current five-year period.

“Transpower’s fall in projected revenue is largely due to the lower financing costs it will face, which we estimate will drop from 7.19% to 5.13% per year,” Begg says. “Having reviewed its application, we also reduced the amount of money it sought for operating and capital spending by around $20 million a year.

“Transpower’s forecast spending on its assets and operating costs is relatively flat over the next five years and the quality of services we expect it to deliver is largely unchanged during this period. However, we want to see improvements in its approach to asset management and its engagement with customers on how it chooses to spend its money.”

Begg says it’s important for everyone to see Transpower progressively making better risk-based decisions on its investments in the national grid.

“Transpower has signalled that it anticipates greater investment will be required from 2025 as it will need to replace a significant number of its overhead wires. We agree that it needs to properly prepare for this workload and we will be setting some extra reporting requirements to help us keep track of its progress.”

The Electricity Authority estimates transmission charges comprise about 10% of a typical household electricity bill.
Submissions close on June 27.