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Have Your Say On Aurora Energy’s Plan To Increase Prices To Fund Major Network Investment

Press Release – Commerce Commission

The Commerce Commission is calling for feedback on the key issues it has identified during its initial assessment of Aurora Energys plan to make its electricity network safer and maintain reliability. Aurora supplies electricity to Dunedin, Central Otago …

The Commerce Commission is calling for feedback on the key issues it has identified during its initial assessment of Aurora Energy’s plan to make its electricity network safer and maintain reliability.

Aurora supplies electricity to Dunedin, Central Otago and Queenstown Lakes. It has historically under-invested in its network and in recent years this has resulted in an increasing number of safety incidents and unplanned power cuts.

To fix its network, Aurora has signalled it requires significant investment over the next decade. In June it made an initial application to the Commission for $383 million over the next three years, approximately double its allowances for the previous three-year period.

To pay for this investment, Aurora is proposing price increases to residential power bills of approximately $20-30 a month over the three-year investment period depending on where a consumer lives. If the Commission approves a default five-year investment period, this would result in further increases in years four and five of approximately $5-6 a month.

Aurora has also signalled it will make a second investment application for a period of five years to address longer term issues on its network.

The Commission’s role in Aurora’s investment proposal is to set network reliability standards, as well as determining how much money it should be allowed to recover from its customers to carry out its plan and over what period.

The issue of Aurora’s approach to regional pricing is for Aurora and the Electricity Authority, while calls for funding to come from elsewhere are for Aurora and its owners, Dunedin City Holdings and Dunedin City Council.

Associate Commissioner John Crawford says the Commission has identified a number of key issues it wants consumer and stakeholder feedback on including options for minimising consumer price shocks.

“We are considering if spending could be deferred, reduced or recovered over a longer period to soften price shocks. However, in making these decisions we also have to consider Aurora’s financial stability and its ability to complete necessary work to fix its network,” Mr Crawford says.

“We want to hear consumer preferences for price increases. For example, would they prefer prices to increase in gradual and steady increments or price increases to be smaller in the first year, followed by larger increases in the following years to give more time to prepare. We also want to know if consumers are willing to pay more in total due to interest costs in order to smooth the price increases over a longer period.”

Other topics the Commission wants feedback on include:

  • The length of the investment period. By default, investment applications are for a period of five years. However, Aurora has only applied for three years to allow it more time to improve its asset data to help inform its second investment application. Aurora’s proposed allowance over five years is $609 million
  • Consumer preferences on the communication, timing and management of planned and unplanned power cuts while Aurora works to fix its network
  • Consumer and stakeholder confidence in Aurora’s ability to deliver on its plan to time, budget and to a high quality, including how Aurora should be held to account for completing the work
  • Whether the COVID-19 pandemic has changed consumer feedback on Aurora’s proposal and how the Commission should account for growth and demand uncertainty caused by the pandemic
  • Ensuring Aurora’s proposed spending is cost effective in areas like safety improvements, tree trimming, staffing and business costs and that it is targeting the right equipment for replacement at the right time.

The Commission expects to make its draft decision in November and a final decision in March 2021. Aurora’s new revenue limits, reliability standards and consumer price increases will come into effect on 1 April 2021.

The issues paper, including a consumer summary and submission form, along with more information on the project can be found at www.comcom.govt.nz/aurora

Feedback can also be provided by email to feedbackauroraplan@comcom.govt.nz. Consultation closes on 20 August 2020.

Public drop-in sessions and stakeholder meetings will be held in Dunedin, Alexandra, Cromwell, Wanaka and Queenstown between 6-13 August. More details can be found at www.comcom.govt.nz/aurora

Background

About Aurora Energy

Aurora owns and operates the poles, lines and other equipment that distribute electricity from Transpower’s national grid to more than 90,000 homes, farms and businesses in Dunedin, Central Otago and Queenstown Lakes. Aurora is a wholly owned subsidiary of Dunedin City Holdings Limited, owned by Dunedin City Council. Aurora’s charges are built into power bills and are something its customers are required to pay no matter which power company they are with. Typically, electricity distribution charges make up about a quarter of an average residential consumer’s power bill (excluding GST).

Regulation of Aurora

As Aurora is a monopoly and its customers have little choice but to connect to its network, the Commission regulates the total amount of revenue it can earn from its customers and the quality of service it must deliver. It does this by setting revenues and quality standards for local lines companies across New Zealand once every 5 years. However, if a lines company needs to invest substantially more in its network, it can submit an investment plan to the Commission seeking approval to increase its prices to fund the investment.

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