Draft decision on Wellington Electricity’s $31 million earthquake readiness plan

The Commerce Commission has released its draft decision on Wellington Electricity’s proposal to spend $31 million on improving its network’s resilience to a major earthquake.

Wellington Electricity, which distributes electricity to approximately 166,000 homes and businesses in the wider Wellington region, applied to the Commission to recover the cost of additional earthquake-resilience expenditure in December 2017. The lines company intends to use the additional revenue to bring emergency hardware, mobile substations, switchboards, critical spares and enhanced communication systems into the region, along with earthquake strengthening substations.

The application followed a Government Policy Statement, which outlined the Government’s expectation that the Commission consider options to allow Wellington Electricity to recover resilience-related expenditure that was not anticipated when its price limits were set in 2014.

“After analysing the proposal, we are satisfied that the expenditure is needed and has been costed appropriately to ensure Wellington’s network is better prepared to withstand a major earthquake,” Commission Deputy Chair Sue Begg said.

As a result of the draft decision, Wellington Electricity estimates their typical consumer will contribute around $1.90 more to their average monthly bill of $160. However, when taken together with lower transmission charges signalled by Transpower, we expect monthly bills will reduce in the coming year, assuming the cost of energy and other components do not change.

“While the application has been fast-tracked, I want to reiterate that this is a one-off in light of the unique set of circumstances and importance of Wellington being able to function to the fullest extent possible during and after a major emergency,” Ms Begg said.

“Our draft decision also requires Wellington Electricity to demonstrate to us it has made the resilience improvements and it will be penalised for any under-delivery.”

Public and stakeholder submissions on the draft decision are due by 22 February 2018 and can be emailed to regulation.branch@comcom.govt.nz with ‘Wellington Electricity CPP proposal’ in the subject line. We expect to release our final decision by 29 March 2018, with the customised price-quality path set to apply from 1 April 2018.

The draft decision can be found here.


Consumer impact

The typical Wellington Electricity consumer’s average monthly bill is approximately $160. This is made up of lines charges (transmission and distribution) and the cost of energy. Wellington Electricity estimates that the draft decision would increase total lines charges by around $1.90 per month, of which 50 cents is for the earthquake-resilience expenditure. The remainder is largely attributed to Wellington Electricity moving from a price cap to a revenue cap, which reflects recent changes to the rules for regulated utilities. Despite this, the Commission expects Wellington consumers will face reduced power bills this year mainly due to lower transmission costs offsetting the increase. This assumes no changes to the cost of energy and other components which make up approximately 60% of a consumer’s total bill.

Price-quality regulation

As a monopoly electricity supplier in the wider Wellington region, the Commission sets the maximum prices Wellington Electricity 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 Wellington Electricity’s specific circumstances to determine a new set of prices and quality standards. More information about customised price-quality regulation can be found on our website.

Government Policy Statements (GPS)

A GPS is not a direction by Government. However, under Section 26 of the Commerce Act, the Commission must have regard to it, subject to our overall requirement to promote the long-term benefit of consumers under Section 52A of the Commerce Act.