The Commerce Commission (Commission) is seeking feedback on its draft decision on the default price-quality path that will apply to Powerco Limited from 1 April 2023 to 31 March 2025. This decision is required to be made by the Commission as Powerco’s customised price-quality path that took effect in 2018 is expiring.

Associate Commissioner, Vhari McWha, says the Commission had the option of rolling over the settings from the customised path into the default path, but chose to set new prices in the interests of Powerco and its consumers. This approach is similar to Wellington Electricity’s transition back to the default path in 2021, with some adjustments to reflect Powerco’s circumstances.

“We propose to adopt the approach we used when setting the default path for all businesses in 2019 and incorporate some updated information to reflect developments since then. Rolling over current prices could inappropriately lock in some short-term costs. The approach we are proposing to adopt avoids this, and also allows us to recognise the additional investment Powerco has made in its network since 2018,” Ms McWha says.

The draft decision proposes to set Powerco’s regulated revenue for 2023 at $319.7 million.

Powerco’s customised path provided for $1.27 billion of spending that allowed it to undertake a major network upgrade to replace ageing parts of its network and respond to strong population growth.

The Commission has previously set customised paths for Orion in 2013, Wellington Electricity and Powerco in 2017, and Aurora Energy in 2021. Aurora is the only other lines company currently on a customised price-quality path.

The Commission is seeking feedback on its draft decision to inform its final decision, due by the end of November. Submissions can be sent to infrastructure.regulation@comcom.govt.nz by 5pm, Thursday 15 September 2022. There is an opportunity for cross-submissions, which need to be received by 5pm, Thursday 29 September 2022.

Background

Powerco is the second largest electricity distributor in New Zealand, supplying electricity to over 340,00 homes and businesses in the North Island. Its network covers Coromandel, South Waikato, Bay of Plenty, Taranaki, Whanganui, Manawatu, and Wairarapa.

Under Part 4 of the Commerce Act, the Commission regulates certain monopoly infrastructure providers, including the local electricity distributors that supply electricity to homes and businesses from the national grid. Sixteen electricity distributors are subject to price-quality regulation which caps revenues and sets minimum standards of quality as a way of ensuring excess profits are limited, businesses have incentives to innovate and invest, and consumers get the service they demand.

The default price-quality path is set in a relatively low-cost way, often using common assumptions across businesses. It is usually set for a period of five years. Where an electricity distributor considers it has different needs, it may apply to the Commission for and propose its own customised price-quality path. Customised paths can apply for a period of three to five years. At the end of the period, unless the electricity distributor has applied for another customised path, it transitions back to the default price-quality path.

Read more about electricity price-quality paths on our website.