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Comcom proposes to lower revenue caps for Powerco and Wellington Electricity

Friday, March 6, 2020
Comcom regulates Powerco and Wellington Electricity

The Commerce Commission has released a proposal to lower the revenue caps for Powerco and Wellington Electricity to ‘align’ their price-quality pathways (CPPs) with other regulated lines companies.

This would bring their weighted average cost of capital (WACC) in line with a decrease the Commission implemented for 17 other electricity lines companies in September 2019

Aligning the cost of capital would decrease Powerco’s allowable revenue which it can recover from its consumers by approximately $150 million and Wellington Electricity’s by approximately $18 million, compared to the revenue projections used when the CPPs were set in 2018.

Why is Comcom proposing lower revenue caps?

Comcom appears to be proposing lower revenue caps to bring Powerco and Wellington Electricity in line with other electricity lines companies.

The amendment is the first part of a three-part approach proposed in the Commission’s consultation paper. The overall aim is for the two companies’ allowable revenue to reflect the WACC change for the remaining period of the CPPs

What do Electricity lines companies do?

Source: Electricity Authority

Electricity lines, or Distribution companies, transport electricity on local lines from the national grid. They provide and maintain the power lines that carry electricity from the national transmission grid to the homes and businesses across New Zealand.

Retail companies purchase electricity from the electricity market. The Retail companies package the transmission and lines charges, along with the amount of electricity used, to create a single invoice for customers.

The cost of generating, distribution and transmitting power accounts for a large portion of a residential power bill – the cost of electricity distribution accounts for 27% of a residential power bill.

What could the changes mean for power customers?

Powerco delivers energy that goes to 1.1m customers (across 442,000 homes, businesses and organisations) in the North Island. Wellington Electricity service the Wellington region.

The proposal could be good news for power customers in the north island. Given that the proposal plans to limit allowable revenue for Powerco and Wellington Electricity – it seems likely that the changes could deliver savings to power customers as part of the distribution portion of their power bill.

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