The Commerce Commission released its final decisions to increase revenue limits for national grid owner Transpower and local lines companies, recognising the significant investment required to maintain and upgrade New Zealand’s electricity network in the coming years.
Commissioner Vhari McWha said the heart of the Commission's decisions was promoting long-term consumer interests and helping ensure Kiwis receive value for money.
“While the decisions mean there will be an increase in the prices most consumers see in their electricity bills, we also understand the importance of incentivising businesses to invest, improve, and meet consumer demands,” said McWha.
“Deferring investment would mean even higher future prices and a network that does not meet consumers’ needs. Consumers rightly expect a safe and reliable network, and greater investment is required to deliver the capacity and resilience Kiwis demand. To help reduce the initial price rise, we have delayed the recovery of some revenue.”
Starting April 2025, the average household’s monthly electricity bill will rise by approximately NZD 10 for the first year of the five-year regulatory period.
Without the Commission’s decision to spread or ‘smooth’ revenue recovery over five years, consumers could see around NZD 20 monthly price increases.
After the first year, consumers can expect monthly bills to increase by an average of about NZD 55 annually in the remaining four years.
McWha said factors such as a growing population, an increase in extreme weather events, and greater reliance on electricity as a fuel for uses like transport and industrial process heat continued to test the capacity and resilience of the country’s electricity network.
Much of New Zealand’s electricity grid was built decades ago, so renewal work has been essential to meet consumers' future needs. The revenue increases reflected the higher costs companies face, including the cost of borrowing, the cost of materials, and inflationary pressures since the last revenue review in 2019.
Higher inflation and interest rates relate to about 55 percent of the increase in revenues.
The Commission has set Transpower’s maximum allowable revenue at NZD 5.9 billion for the next five years, an increase of 44 percent compared to the previous five years. The decision to smooth revenue increases meant annual increases had been capped at 16 percent for the first two years and five percent for the remaining three years.
Transpower submitted a detailed proposal to the Commission for its price-quality path, and an independent expert assessed the proposal. The proposal said its work programme was primarily driven by the need to replace and renew assets that form the backbone of New Zealand’s electricity grid.
“Upon reviewing Transpower’s proposal, in combination with the advice of the independent expert and the submissions we received on our draft decision, the Commission is satisfied Transpower’s proposed expenditure is supported by robust asset management practices and, in most cases, a demonstrable need.”
She said the Commission remained concerned Transpower might not be able to recruit the workforce needed to deliver its work programme due to workforce shortages and high demand for specialist talent.
“We have adjusted Transpower's expenditure allowance for this workforce risk. Should Transpower provide evidence that it has recruited the necessary workforce, Transpower will be able to access those funds.”
For local lines companies subject to revenue limits, the Commission has set the maximum allowable revenues for five years at NZD 11.5 billion.
Although revenue limits have increased, McWha said the Commission has not allowed for all expenditures forecast by local lines companies, primarily due to uncertainty surrounding the need, timing, and scale of those expenditures.
“Predicting how growth will unfold across the regions remains a challenge. That’s why businesses have the option to come back to us to ask for additional revenue when there is more certainty about the investment, or if an unexpected new demand were to occur – for example, if significant new infrastructure was needed to accommodate ferries, buses, or trains converting to electricity.”
The Commission has expanded its existing innovation scheme to encourage local lines companies to try new solutions, which can potentially deliver lower consumer bills in the future.
“Innovation and efficiency will play a significant role in the transition to increased electrification, helping to reduce costs and deliver value for money to consumers. The ability of local lines companies to apply for this allowance will enable them to think innovatively to help solve network challenges and to make better use of existing infrastructure.”
The Commission has also approved costs for local lines companies to purchase low-voltage network data from metering companies. This will provide better information about the quality of service consumers receive and facilitate efficient decisions about investment in and use of the network.
