Power balance struck

A balance has been met between keeping electricity costs low for customers and ensuring adequate investment in lines networks, the Commerce Commission says.

ComCom has released its final decision on the default price-quality paths (DPPs) which apply to 15 of New Zealand’s regulated electricity lines companies for the period 2020-2025.

The price-quality paths set out the maximum revenue the monopoly lines companies are allowed to earn from their customers and the minimum quality standards they must meet, measured in terms of power outages on their networks.

Electricity distribution costs make up about a quarter of an average residential consumer’s monthly bill, ComCom says.

The final decision strikes a balance between the need to minimise electricity distribution costs for consumers, while ensuring a stable regulatory regime where lines companies have incentives to invest in their networks to maintain reliability and meet the long-term needs of their customers, ComCom deputy chair Sue Begg says.

“For most customers, this reset will result in an initial reduction in distribution charges in April next year.

“This reduction is largely due to lines companies having access to cheaper finance due to low interest rates. Charges will then increase in line with inflation over the remaining four years,” Begg adds.

“For lines companies we have allowed for increased investment in their networks, with companies forecasting more than $2 billion will be spent on renewing ageing poles and wires and powering growing communities over the next five years.”

ComCom has also provided an innovation allowance of up to $6 million over the next five years for lines companies regulated under the DPP to invest in new practices and technologies as New Zealand moves to electrify the economy and reduce its carbon footprint.

“Lines companies have always been allowed to innovate under our regime, but this allowance provides an added incentive.”

The commission has kept reliability standards broadly the same. This means lines companies will need to ensure customers do not experience any more power cuts than they do now.

Begg says the commission recognises some lines companies’ concerns about the effect a lower cost of capital is having on their allowable revenue.

However, ComCom is confident its decision still provides appropriate revenue to allow adequate investment in their networks.

The decision not to investigate amendments to the cost of capital rules, proposed by some lines companies, took account of the need for certainty in key aspects of the regulatory regime as well as whether there were any exceptional circumstances justifying the inclusion of these proposals in the review, Begg says.

The DPP takes effect on April 1, 2020 when changes in revenues will flow through to prices for consumers.

The impact of the reset can be viewed here or see the full decision.

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