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NZ regulator ruling set to trim national electricity line prices by 1.1% in 2015

Friday 28th November 2014

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The Commerce Commission's final decision on default prices for 16 electricity lines companies should bring down distribution prices by 1.1 percent in 2015, with future increases for the following four years to be at the rate of inflation.

The commission today set out the maximum revenue the regulated lines companies can earn from April 1, 2015, until March 31, 2020, with a modest reduction expected nationally, varying across the distributors, the antitrust regulator said in a statement. The commission will also introduce a quality incentive scheme to improve energy efficiency and demand side management initiatives that would reward distributors with an increase of up to 1 percent in the company's maximum allowable revenue if they beat a target, or penalise them by up to the same amount if they miss the target.

"The final pricing decisions are fairly close to those announced in the draft decision in July, which shows that the reset process is working as intended in providing a degree of predictability for distributors," deputy chair Sue Begg said. "This is important in ensuring distributors have the right incentives to innovate, invest and improve their efficiency for the benefit of New Zealand."

The default price quality path regulates 17 companies, setting out the maximum prices and revenues firms can charge and earn during the regulated period, the annual rate of change they can increase pricing relative to the consumers price index, and minimum standards that have to be met. Christchurch lines company Orion New Zealand was excluded from today's determination after seeking a customised price path to let it recover earthquake rebuilding costs.

Begg said the decision reflects a reduction in the weighted average cost of capital (WACC) used for regulated businesses announced in October, which had been further influenced by changing interest rates since then.

"That means the cost of capital has fallen from 7.6 (percent) in the draft decision to 7.2 (percent) in the final," she said.

The decision will let Vector increase prices 0.8 percent in the 2015/16 year with a maximum allowable revenue of $395.2 million and future increases at the rate of CPI. Last month, the Auckland lines company complained that the regulator's forecasting doesn't recognise consumer trends, and will cost it about $80 million over the 2013 to 2015 period. Shares of Vector rose 0.3 percent to $2.92.

New Plymouth based Powerco, the country's second biggest gas and electricity network company, can increase prices 0.16 percent in the 2015 year with a maximum allowable revenue of $250.4 million, and future increases at the rate of inflation.

The firms allowed to claw back under recovered costs from the prior period include Alpine Energy, which can lift prices 12.5 percent in 2015 then CPI plus 11 percent in subsequent years, Centralines, with 8.9 percent in 2015 and CPI plus 7 percent thereafter, Top Energy with 8.3 percent in 2015 and CPI plus 7 percent in out years and Eastland with a 6.7 percent allowable increase in 2015 with CPI plus 3 percent after that.

Network Tasman faces a 14 percent price cut with allowable revenue of $28.1 million in 2015, with future increases limited to the rate of inflation and Wellington Electricity a price reduction of 14 percent, with allowable revenue $98.8 million and future increases at the rate of inflation.

Lines company prices make up about 23 percent of the average power bill, and the regulation is averaged across all customers, giving distributors flexibility on how to set prices for different customers.





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