Aurora Energy seeks pricing change from 2020 to fund network investment

26 May 2017

Electricity network Aurora Energy has confirmed it will apply to the industry regulator, the Commerce Commission, to switch to a customised price-quality path (CPP) from 2020 to fund the future investment across its network required to maintain reliability of supply.

The network company, which distributes electricity to more than 87,000 homes, farms and businesses in the Otago region, is one of 16 New Zealand network companies subject to price-quality regulation. Aurora Energy’s charges remain among the lowest in the country while its reliability performance over the past decade has been well ahead of the national average.

Aurora Energy Chief Executive Grady Cameron says the company is planning for the application process to take three years with any price change not coming into effect until the next regulatory pricing period starting 1 April 2020.

"The Commerce Commission sets pricing for electricity networks like Aurora Energy and any change to the default pricing can only occur with the approval of the Commerce Commission and once it has completed its independent audit, verification and evaluation processes and following consultation with electricity customers on the Aurora Energy network.”

Aurora Energy plans to submit its application to the Commission in early 2019, following a period of consultation with Otago electricity consumers. If accepted by the regulator, Aurora Energy would move to a customised pricing approach from April 2020. The application would also seek an increase in the reliability thresholds so that Aurora Energy can carry out the work required without being penalised for planned power outages required to protect its workers and the public.

Mr Cameron says that while Aurora Energy will apply for an increase in the distribution line charge component of customers’ electricity bills, it wasn’t possible to quantify the likely price impacts until detailed modelling had been completed. “It’s important to note that line charges make up around a quarter of the total power bill and any future price increase would affect that smaller proportion of what customers pay, assuming retailers pass on any changes to line charges.”

“The Commerce Commission is also likely to specify a starting price adjustment, which accounts for allowable revenue for the first year as well as a rate of change to prices that may occur year-on-year, to avoid the potential for rate shocks.”

The application follows the release of Aurora Energy’s 10-year Asset Management Plan (AMP), signalling investment of more than $720 million in the Dunedin, Central Otago and Queenstown Lakes districts over the next decade. Almost half of the expenditure is allocated to asset renewal and major projects in both Dunedin and Central Otago.

“A lot of the Aurora Energy network was built in the 1960s and 70s. This programme will see ageing assets upgraded and replaced with modern equipment designed to keep pace with demand and ensure the resilience of the network.

“Substantial investment is also needed to cater for accelerating residential and commercial development, particularly in the Queenstown Lakes District, moving Aurora Energy outside the provisions made in the current default price-quality path,” says Aurora Energy Chief Executive Mr Cameron.

Graph Distribution Component of Revenue
(Source: PricewaterhouseCoopers information disclosure compendia 2004-2016)