Vector urges Commerce Commission to focus on climate-change resilience, other future challenges

Power and gas distributor Vector says the Commerce Commission needs to be more forward-looking. Photo / Brett Phibbs

Auckland electricity and gas distributor Vector has made a plea for the Commerce Commission to be more forward-looking to prepare for a rapidly changing future.

The commission earlier released a review of the rules governing how much monopolies can charge for their services.

The commission’s “Input Methodologies Review” updated the key regulatory rules for electricity lines, gas pipelines and airports.

Commissioner Vhari McWha said the rules were fundamental to ensuring airports and the energy sector can make a fair return on investments.

The rules guide how assets are valued, costs are allocated, risks are shared between businesses and consumers and how businesses are compensated for their investments.

“The review, which involved a two-year process of analysis and consultation, found that the input methodologies are generally robust and will provide an appropriate and stable platform to support investment and innovation,” she said.

“We need investment to ensure that critical energy and airport infrastructure provides consumers with the services they demand, including preparing for electrification of our economy and maintaining resilience to major weather events.”

The commission is in the process of considering the investment plans of most electricity lines companies, and Transpower, which wants to raise its transmission charges to help pay for a $4.7 billion upgrade of the power grid.

Next year, the commission will apply the input methodologies to set total revenue allowances for companies for the remainder of the decade.

The commission would consult on the total revenue it would allow suppliers to recover for regulated services.

“However, consumers should expect that greater investment and higher interest rates will likely mean higher prices to enable the services they want and need,” McWha said.

Vector said it was keen to support the commission and the new Government in the next steps to urgently solve some of the major issues confronting the sector.

“This includes rethinking regulation and developing a fit-for-purpose regime that can meet New Zealand’s electrification ambitions,” it said.

“The immediate and pressing issue now facing infrastructure providers is how to finance electrification for the economy to decarbonise and to build resilience to cope with extreme weather events brought by climate change, such as the Auckland floods and Cyclone Gabrielle earlier this year,” Vector said.

“This needs prompt attention to avoid compromising the country’s progress towards resilient infrastructure.”

Vector said the commission had an opportunity to address the issue of investment when it consults in the new year about “financeability”, taking into account the $30 billion investment that electricity distributors will need to make over the next decade.

“Like any other commercial business, investments can only be made where it is both commercially attractive and financeable, and confidence can be provided by following the lead of other regulatory regimes around the world and adopting a financeability test as standard practice.”

This would help to provide certainty and assist with “unleashing investment” – the stated ambition in the new Government’s Electrify NZ policy for the sector.

“The next decade is critical for electricity infrastructure investment and we look forward to working with the commission and government to support New Zealand’s progress towards resilient electrification,” Vector said.

Separately, Auckland Airport said it would examine the review “in detail” before commenting.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.