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Commission consulting on financing step-change in electricity lines investment

With New Zealand’s electricity networks facing increasing demand, the Commerce Commission is consulting on how the framework for its upcoming price-quality decision considers the financing of necessary investment.

Driven by a combination of factors, including increased electrification as part of the decarbonisation of New Zealand’s energy mix and the need to ensure security of supply and resilience, the 16 regulated electricity lines companies are forecasting $8.4 billion (in constant 2024 dollars) of investment from 2025-2030. This would represent an increase of 30% above investment in recent years. The Commission is assessing those forecasts ahead of a draft decision on revenue allowances in May.

Commissioner Vhari McWha says this consultation is an opportunity to work through some of the concerns expressed by lines companies relating to attracting sufficient capital to finance their investments.

“Decisions about capital structure and ownership are for each electricity network business and its shareholders to make – in this paper, the Commission wants to test whether the default price-quality path presents any undue barriers to financing large-scale investment,” Ms McWha says. Capital investment in electricity networks is paid for over time by consumers as they use the network. Ms McWha says the regulatory framework provides for the reasonable commercial returns necessary to underpin this type of investment.

“This position was recently confirmed in our 2023 review of the standing regulatory rules, or input methodologies. However, we recognise decisions made when setting the revenue path, such as to smooth revenue to avoid price shocks for consumers, may affect businesses’ financial management in some circumstances. We are consulting on whether these issues are significant and, if they are, how we can address them,” Ms McWha says.

Ms McWha adds that while the Commission is mindful of the impact delayed recovery of revenue can have on the financial positions of businesses, “the Commission expects businesses to consider other options before asking consumers to pay more upfront”.

The Commission is interested in hearing stakeholder views on the issues identified in its paper, which can be found on the Commerce Commission’s website. Submissions can be made by 5pm, on Friday, 15 March 2024 via infrastructure.regulation@comcom.govt.nz.

 

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