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$1.27 billion major network upgrade for Powerco approved

28 March 2018

Commission approves $1.27 billion major network upgrade for Powerco

The Commerce Commission has approved an application by Powerco to spend $1.27 billion on a major network upgrade.

In June 2017, Powerco applied to the Commission to increase its prices to allow it to replace parts of its network built in the 1950s and 60s and nearing the end of its life. The network is also under increasing pressure from powering regions with strong growth such as Tauranga.

“Our final decision is largely unchanged from our draft. This investment, which is a third more than Powerco has spent on its network in the past 5 years, is necessary to maintain a safe, secure and reliable network for its customers,” Commissioner Dr Stephen Gale said.

As a result of the upgrade, we expect a typical Powerco consumer’s monthly bill of $210 would increase by about $2.70. As only a portion of the increased expenditure will affect prices immediately, we also expect a further increase of about $6 a month from 2023 when pricing will reflect all completed investments. However, the total price a consumer pays also depends on other components including generation, transmission, and retail which make up the majority of a consumer’s electricity bill.

“Our final decision is the result of a 9 month process to review the proposal and test our views. We have benefitted from the initial scrutiny of the independent verifier who reviewed Powerco’s proposal prior to it being submitted to us, as well as scrutiny by stakeholders and both independent and our own engineering experts,” Dr Gale said.

“We are conscious of keeping electricity affordable and considered feedback to limit price increases by keeping network reliability standards at current levels. However, we believe the investment is needed for Powerco to maintain a safe, secure and reliable network. As a result of the investment, there will be a small improvement in network reliability, so it’s appropriate the standards reflect this.”

Powerco will have to report annually to both the Commission and its consumers about how its investment is tracking against its proposal.

The new prices and quality standards apply for the 5 year period: 1 April 2018 to 31 March 2023. The final decision can be found on our website.

An infographic outlining the decision can be found here.

Background

Powerco
Powerco is New Zealand’s second largest electricity lines company with its network connecting 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, we regulate 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 (CPP), we must take account of its specific circumstances to determine a new set of maximum prices and quality standards. More information about customised price-quality regulation can be found on our website. Visit www.yourenergyfuture.co.nz for a copy of Powerco’s proposal.

Customised price-quality paths (CPP)
Powerco is the second electricity lines company to apply for a customised price path. The first was Orion in response to the Christchurch earthquakes. Wellington Electricity subsequently applied for a CPP, with our decision on its application also released today.


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