Higher network charges expected to add $15 a month to average power bill next year

Wednesday, 29 May 2024

Long-standing warnings that higher power bills are in the pipeline have just become more concrete.

The Commerce Commission has agreed Transpower and local line companies should be allowed to invest more money in the electricity network to cope with the growing population and to invest in more resilience and electrification.

It also says they need a higher return to reflect the impact of higher interest rates and higher operating costs.

A draft decision released by the commission on Wednesday would allow national grid operator Transpower to charge customers $5.8 billion in total for its services over a five-year period starting in April next year.

That is a 43% increase on its charges during the current five-year period.

It would also allow local lines companies to charge up to $12b over the same period, which would be a 50% increase on their current total charges.

Commissioner Vhari McWha said the impact of its draft decision would be to push up the average household power bill by $15 a month from April next year, and by a further $5 a month each year after that, up to 2030.

Deborah Hart, chairperson of the Consumer Advocacy Council which was established by the former government to represent the interests of consumers and small businesses in the power sector, said it hadn’t yet formed a view on whether the increases would be justified.

But she said the impact on power bills was concerning.

“I think consumers understand that there is an infrastructure build that needs to be paid for, but I'm very concerned that we will have a ‘beautiful’ electricity system that increasing numbers of New Zealanders won't be able to afford.”

McWha said the commission was mindful that higher electricity prices would be unwelcome.

However, it also knew the importance of allowing businesses to invest and to recover their “reasonable costs”, she said.

The Commerce Commission’s role in capping lines companies’ allowable expenditure stems from the fast they are local monopolies.

Failure to adjust the businesses’ allowable charges would “otherwise lead to higher prices down the track”, she said.

The expected price increases will come on top of any further increases in daily fixed charges that consumers on so-called “low-user tariffs” may need to pay, as a result of their phase out, and on top of any increases in the price of electricity itself.

More than half of households have faced a series of 34½ cent annual increases in their daily fixed charge, due to a decision by the previous government to phase out a cap on the amount that consumers should pay.

That phase-out is currently subject to a previously-planned “mid-term review” by the current Government.

Hart said the Consumer Advocacy Council hadn’t yet formed a view on whether the phase-out of low-user tariffs should be halted.

But she said she was sceptical that electricity retailers were passing on the benefit they got to customers who used more power, as Labour’s policy change had envisaged.

The commission’s ability to regulate Transpower and lines companies’ revenues reflects the fact they are monopolies that could otherwise be able to charge excessive prices.

It is inviting submissions on its draft decision by June 26.

Tracey Kai, chief executive of the Electricity Networks Aotearoa, which represents lines companies, said extra investment did increase power bills.

“But it also creates opportunities for lines companies to innovate and allow customers more flexibility with how and when they use their power. This can create more opportunities for consumers to keep the cost of electricity down,” she said.

She noted the Government had a commitment to “zero net carbon” by 2050 and said a 68% increase in the projected demand for electricity by then posed a big challenge for lines companies.

“We must invest enough to make sure our electricity networks are resilient to increasing natural disasters and to support the much higher demand of electricity that our country will need in the near future.”

Transpower said in a brief statement that it was pleased the commission had recognised its commitment to ensuring New Zealanders have a “safe and reliable electricity grid now and into the future”.

“We will take some time to review the draft decision in detail,' it said.