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Draft decision on Powerco’s application for major electricity network upgrade

16 November 2017

The Commerce Commission has today released its draft decision on electricity lines company Powerco’s proposal for a major network upgrade.

In June 2017, Powerco applied to the Commission to increase its prices to allow it to replace ageing assets in its network and meet projected increases in demand for electricity.

“We have carefully assessed Powerco’s proposal. We accept that the company is facing significant challenges as a result of a network built in the 1950s and 60s nearing the end of its life and under increasing pressure from powering regions with strong population and economic growth such as Tauranga,” Commissioner Stephen Gale said. 

The Commission’s draft decision proposes to allow Powerco to spend $1.27 billion over the next 5 years, a third more than the past 5 years, and to recover this increased spending from consumers over the longer term. This increase in spending would raise the average residential monthly electricity bill by about $2.70 in the next 5 years, and an additional $6 in the longer term if current demand and investment forecasts eventuate.

“We are conscious of keeping electricity affordable. However, long-lived assets like electricity networks require significant upfront investment, with the full costs recovered over their expected lifetime. We believe this is in the best interests of today’s consumers, as well as future generations,” Dr Gale said.

“We are satisfied that the proposed investment is necessary to maintain a safe, secure and resilient network while being mindful of emerging technologies like solar panels and battery storage.”

Dr Gale said the draft decision proposes that Powerco will have to report annually, both to the Commission and to public meetings on how its investment is tracking against its proposal.

“A priority for the Commission will be how Powerco is improving its asset management practices over the course of the upgrade.”

The Commission welcomes feedback on the draft decision by email to powercocpp@comcom.govt.nz by 15 December 2017. Cross-submissions will take place in January and a final decision is expected to be released by 29 March 2018.

The proposed new prices and quality standards would apply for a 5 year period, starting 1 April 2018.

The draft decision can be found on our website. An infographic outlining the draft decision can be found here.

Background

Powerco

Powerco owns and operates a network of power lines that deliver electricity to consumers from the national grid. Powerco is New Zealand’s second largest electricity lines company and its network connects to more than 330,000 homes and businesses in Manawatu, Whanganui, Taranaki, Tararua, Wairarapa, Thames, Rangitikei, Coromandel, Eastern and Southern Waikato, and Western Bay of Plenty. As the only electricity distributor in those regions, the Commission regulates the maximum prices Powerco can charge and minimum quality standards it must meet through a default price-quality path (DPP). However, in applying for a customised price-quality path, the Commission must take account of their specific circumstances to determine a new set of prices and quality standards. Visit www.yourenergyfuture.co.nz for a copy of Powerco’s proposal.

Customised price-quality paths (CPP)

The Commission made significant changes to the rules around CPP applications as part of its input methodologies review, completed last year. These focused on streamlining the application process, consistent with improving confidence in the process for future applicants, and recognising that CPPs may well be in the long-term interests of consumers. Powerco is only the second electricity lines company to apply for a customised price path. The first was Orion in response to the Christchurch earthquakes.