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Users, retailers push back against Powerco's price hike plan

Electricity users, retailers push back against Powerco's price hike plan

By Paul McBeth

Oct. 3 (BusinessDesk) - Big electricity users and generator-retailers are wary that customers will bear an unfair burden from lines company Powerco's plan to fund a $1.4 billion network upgrade through a hike in regulated prices.

The New Plymouth-based company, which is owned by fund managers QIC and AMP Capital, is seeking a 'customised price-quality path' letting it increase weekly prices by $1-to-$1.50 per household, lifting annual revenue by 5.7 percent in the first year followed by four years where increases are linked to inflation. It says it needs the funds to help pay for $873 million of capital spending and $455 million of operating expenditure through the period.

The Commerce Commission regulates prices for gas and electricity transmission companies such as Powerco, typically using a default price-quality path. Firms can seek to customise their own price path for those unexpected needs, the first being Christchurch lines company Orion New Zealand's application to lift prices to help fund rebuilding its network after the 2010/11 earthquakes.

Powerco's application is the first without the pressure of an external event forcing its hand and several submitters note the proposal will set an important precedent for future companies.

The Electricity Retailers' Association of New Zealand, which represents 20 power companies, said because of that precedent it was keen to make sure the regulator's scrutiny was robust.

The lobby group said the application lacked analysis of the consumer benefit from Powerco lifting investment against what is currently being spent. It claimed the lines company hadn't "sufficiently demonstrated that the additional levels of investment will result in the security levels required" or "sufficiently demonstrated that the benefit to consumers justifies the additional costs (both in terms of increased charges and disruption during the implementation phase)."

Similarly, the Major Electricity Users' Group was also unconvinced customers will be better off under the customised model, or that the lines company's owners had "made sacrifices in order to meet necessary expenditure". A New Zealand Institute of Economic Research report commissioned by MEUG estimates "the value to consumers of the increased network reliability under the CPP is considerably lower than our estimate of the increased cost to customers".

In contrast, lines companies backed Powerco's application with Orion saying the application struck "the right balance between understanding customers' desired levels of quality (thorough, extensive consultation not seen in our industry to date), willingness to pay and affordability, in conjunction with prudent expenditure to execute on deliverability and maintain a safe, responsive, reliable and resilient network into the future". Dunedin distribution firm Aurora Energy said the commission should avoid setting too high a bar and undermine a customised path.

"The risk, if the Commission gets the CPP determination process wrong, is that regulated suppliers consign CPPs to the ‘too hard’ basket," Aurora said.

The regulator will release a draft decision in November with a final report due in late March next year.


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