New Revenue Limit Set For Powerco Reflects $1.3b Network Investment

The Commerce Commission has today made changes to the revenue that central North Island electricity distributor, Powerco Limited, can recover from its customers, following a $1.3 billion programme of investment in its network over the past five years.

Today’s decision relates to the expiry of ‘customised’ regulatory settings that Powerco had applied for in 2017. These involved a programme of investment to replace equipment built in the 1950s and 60s that was nearing end-of-life, and to respond to increasing pressure on the network in power regions with strong population growth such as that seen in Tauranga – one of New Zealand’s fastest growing cities.

With the customised settings expiring, the Commission was required to set new revenue limits for Powerco that will apply for two years until it resets the revenue limits applying across electricity distributors again in 2025.

The new revenue limits for Powerco have increased to reflect investment that has been made to enable growth and maintain reliability for consumers. At the same time, the Commission has taken care to ensure lines charges reflect reasonable costs with any increases to prices for customers being justified.

The new revenue limits mean that Powerco will be allowed to increase lines charges to its customers from 1 April 2023 and it is expected to add about $2 per month to the bill of a typical residential electricity user connected to its network. The actual lines charge for a customer will be set by Powerco as the Commission’s revenue regulation relates to overall limits and not individual charges.

Background

Powerco is the second largest electricity distributor in New Zealand, supplying electricity to over 340,000 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 1986, the Commission regulates certain monopoly infrastructure providers, including local electricity distributors that supply electricity to homes and businesses from the national grid. Some of these electricity distributors, including Powerco, are subject to price-quality regulation which caps their 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. All local electricity distributors are subject to information disclosure regulation which requires them to disclose information on the network and performance publicly for scrutiny.

Where an electricity distributor considers it has different needs, it may apply to the Commission to have customised price-quality regulation put in place via a customised price-quality path as Powerco did in 2017. Powerco’s customised price-quality path lasted for five years, and from 1 April 2023, it will transition back to the default price-quality path which applies to other electricity distributors. The default price-quality path is usually set for a period of five years, and is set in a relatively low-cost way, often using common assumptions across businesses.

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