Have your say on Powerco’s proposal to spend $1.32 billion

Have your say on Powerco’s proposal to spend $1.32 billion on its lines network

The Commerce Commission has today released its Issues Paper for electricity distributor Powerco Limited’s (Powerco) proposal to increase its prices and change its quality standards to spend $1.32 billion on operating and maintaining its electricity lines network.

The paper sets out the key issues the Commission intends to focus on in its review of Powerco’s proposal, and invites consumers and interested parties to share their views.

In June 2017, Powerco applied to the Commission to increase its prices and change its quality standards to allow it to spend $1.32 billion, largely to replace and upgrade ageing assets and meet system growth demands.

If accepted, Powerco estimates the cost it would be able to recover from its customers would increase a typical household monthly bill by about $3 to $4.

“We must satisfy ourselves that the proposal is for the long term benefit of consumers. That’s why it’s important for people to have their say to help shape our views,” Commission Deputy Chair Sue Begg said.

In advance of their submission, Powerco’s proposal was scrutinised by Farrier Swier Consulting, an independent verifier, who tested the assumptions underpinning forecast expenditure and energy demand. The verifier was satisfied that 91% of the proposed expenditure was reasonable. In response to the verifier’s work and feedback from its consumers, Powerco revised its proposal down by $74 million.

“We have confidence in the quality of the verifier’s work after critically reviewing their findings, as well as the methods underpinning them. As a result, we are proposing to accept their findings and target our review on the areas the verifier suggests warrants further scrutiny,” Ms Begg said.

“We are also interested in feedback on the long-term price impact of the proposal on consumers. While the proposal is focused on the five years starting 1 April 2018, we want consumers to understand the proposed investment is likely to increase a typical household bill again after 2023.”

Submissions on the proposal close at 5pm on 22 September 2017. Submissions should be emailed topowercocpp@comcom.govt.nz

The Issues Paper and Powerco’s proposal are available on our website, along with a factsheet explainingcustomised price-quality regulation for EDBs.

The Commission intends to release its draft decision by 17 November and final decision by the end of March 2018.

Background
Powerco
Powerco is an electricity distributor who owns and operates a network of power lines that deliver electricity to consumers from the national grid. Powerco’s network connects to more than 320,000 homes and businesses in Manawatu, Whanganui, Taranaki, Tararua, Wairarapa, 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.

Currently, Powerco’s maximum prices and minimum standards are set through a default price-quality path (DPP), which applies to 19 electricity distributors across New Zealand. However, Powerco has applied for a customised price-quality path (CPP). Under a CPP the Commission can take into account the specific circumstances of the individual business to determine a new set of prices and quality standards.

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 interests of end consumers (eg, where significant extra investment is required because a high proportion of network assets are nearing the end of their lives).

ENDS

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