Aurora Energy sees two-year impact from covid-19

Aurora Energy supplies customers in Queenstown, Central Otago and Dunedin. Photo / NZH

Otago power distributor Aurora Energy believes the covid-19 pandemic could defer demand growth on its networks by as much as two years.

The company is seeking a customised pricing plan from the Commerce Commission so it can spend $383.3 million over three years and start catching up with deferred maintenance. But it wants greater flexibility within that plan to delay work if it's not immediately needed.

It has already reduced its customer connection forecasts and deferred some projects, given the expected impact on tourism and hospitality from the pandemic – particularly on its Queenstown and Central Otago networks.

While most of the company's planned capital spending is on safety-driven renewal of poles, lines and substations, it has also proposed a list of up to 10 growth projects that could be advanced or deferred depending on the pace of demand recovery post-covid.

Slower growth

Aurora is assuming that growth will be slowed by two years but will then return to pre-covid levels in the year starting April 2022 – the second year of the three-year customised price path it is seeking.

"In the context of a significant price rise, we want to create an opportunity to defer growth projects as much as possible and share that deferred capex gain with consumers in the CPP period," the firm said in its 382-page application.

Aurora, owned by Dunedin City Council, is the country's seventh-largest network, distributing electricity to about 91,000 homes and business.

It was restructured in 2017, with the establishment of a new board and management, after a review by Deloitte found the firm had been underspending on maintenance for decades in favour of regular dividends to its owner.

The company has already upped its spending on asset replacement but is spending more than its regulated revenues allow for. It expects to spend about $790m by early 2029, and expects to have to seek a second, five-year CPP starting April 2024 to complete that work.

Catching up

In its application, Aurora notes that by April next year it will have overspent the Commerce Commission's allowances by about $207m over five years.

"These overspends have placed significant financial pressure on the business. In addition to the investment overspend the shareholder has foregone dividends and will continue to do so for an extended period, even if this CPP application is approved in full."

Operating without a CPP is "not realistic or sustainable," it said.

Aurora last paid its council owner a $1.5m dividend in 2017, having paid as much as $14m to the council in dividends and subvention payments in 2013.

The company reported a $10.9m loss for the March 2019 year, including a $5m provision for a fine for breaching reliability standards the Commerce Commission set it for 2016, 2017, 2018 and 2019.

Aurora has spent the past year consulting with customers on the $400m build programme it had previously proposed, which would have increased household bills by about $25 a month over the three years, and business bills by about $53.

It has since trimmed that spending to about $383m, about 20 per cent more than in the previous three years, and the projected increases to $19 and $40 a month respectively.

The Commerce Commission expects to publish an issues paper in August and a draft decision in November. After considering public submissions it will make a final decision by March next year.