Beyond that, increases of $5 a month in each year of the rest of the five-year forecast period were on the cards.
The average increase in household electricity bills will be different depending on where customers live. Some regions will see average increases of about $10, while for others it will be $20 per month.
Without the commission’s proposal to slow revenue recovery, consumers could have been looking at still higher price increases.
“If we had not smoothed out the impact, the first year would have been $25 a month,” McWha told the Herald.
“We have spread that out over time to make that more manageable for consumers,” she said.
The electricity sector is facing a step change in spending requirements driven by the need to renew networks built last century, growing resilience needs in the face of extreme weather events, population growth and increased electrification to support the national energy transition.
In November, Transpower made its case for higher transmission charges.
The commission said it was conscious that more investment in the network was required.
“That’s why we’re proposing to increase the amount of revenue Transpower and local lines companies can earn.
”However, we haven’t allowed for all of the expenditure that they forecast.”
The commission had taken the additional step of spreading the recovery of revenue by Transpower and local lines companies over a longer period to soften the impact of initial price increases on consumers.
The proposed increase reflected the higher costs companies are facing, including the cost of borrowing, cost of materials and inflationary pressures since the last revenue review, in 2019.
“It also recognises that assets built last century — many in the 1960s and 1970s — need to be maintained and replaced.
“Electricity networks also need to grow and adapt to meet population growth and new demands, such as the increasing electrification of transport and industrial process heat. It is important that we focus on long-term investment in essential infrastructure,” she said.
“Putting it off will lead to even higher prices down the track and could lead to less resilience, more power outages and a network that’s not able to keep up with demand growth.”
The commission proposes to set Transpower’s maximum allowable revenues at a total of $5.8 billion for the next five years — an increase of 43 per cent compared with the previous five years.
However, the commission’s proposed revenue-smoothing meant annual increases are capped at 15 per cent in each of the first two years and 5 per cent for the remaining three years of the regulatory period.
Transpower has said its work programme was largely driven by the need to replace and renew the assets that form the backbone of New Zealand’s grid.
”Having reviewed Transpower’s proposal and considered the advice of the independent expert, we are satisfied that Transpower’s proposed expenditure in general is underpinned by robust asset management practices and a demonstrable need,” McWha said.
However, she noted there were concerns that Transpower may not be able to recruit the workforce needed to deliver its work programme due to shortages and high demand for specialist talent.
The commission proposed an adjustment to Transpower’s expenditure allowance to account for the risk.
For local lines companies subject to revenue limits, the commission is proposing to set the maximum allowable revenues at a total of $12b.
This represents an increase of 50 per cent compared with the previous five years. However, revenue-smoothing means increases are about 24 per cent on average for the first year, before rising gradually over time.
In a short statement, Transpower said it was pleased the commission had recognised its commitment to a reliable electricity grid.
“We will take some time to review the draft decision in detail,” it said.
The Consumer Advocacy Council urged the commission to carefully consider all the alternatives before confirming its draft decision.
“Consumers are already feeling the pain of rising electricity costs and for power bills to rise further will only further squeeze household budgets,” council chairwoman Deborah Hart said.
“High inflation, the phased removal of the low fixed user fees and problems with the wholesale electricity market are already driving prices higher.
“The removal of the low fixed user charges have to date added 90 cents a day to electricity bills for those on these plans,” Hart said.
Electricity Retailers’ Association of New Zealand chief executive Bridget Abernethy said transmission networks require investment to maintain them.
“While we’ve seen relatively consistent levels of investment and stable costs in the past, factors like inflation, high interest rates, ageing infrastructure assets, and climate change are putting further pressure on our energy networks and driving changes to investment needs,” she said.
Abernethy said that while transmission and distribution costs are increasing, the impact on customers’ electricity bills will be determined by individual retailers.
Jamie Gray is an Auckland-based journalist covering the financial markets and the primary sector. He joined the Herald in 2011.
