The Commerce Commission has released its final decision on how it will move Wellington Electricity Lines Limited from a customised price-quality path (CPP) to a default price-quality path (DPP) from 1 April 2021 to 31 March 2025, following industry feedback on its draft decision.
“The final decision released today takes into account feedback received from a number of organisations in the electricity sector,” Commission deputy chair Sue Begg said.
“The key change is that there will be a 0.6% reduction in net allowable revenue for Wellington Electricity relative to the current year’s CPP value. This is a smaller reduction than was proposed in the draft paper.”
“This is due to the Commission calculating the inflation expectations for the coming years using the same forecasts that were used when all other electricity distribution businesses were moved to the 2020-25 default price-quality path.”
“I would like to thank all those who took the time to read and comment on the draft decision.”
“It will now be up to Wellington Electricity to inform consumers of changes to their lines charges that will take place from 1 April 2021,” Ms Begg said.
Under the Commerce Act, the Commission regulates monopoly infrastructure providers, including most local lines companies, to ensure they deliver strong and sustainable services for the long-term benefit of consumers.
The Commission’s price-quality regulation sets rules about how much the lines companies can earn from their customers and the minimum reliability standards they must deliver. The companies must also publicly disclose information about their financial and physical performance of their networks to increase transparency. Community-owned lines companies are exempt from price-quality regulation.
The Commission only sets the maximum overall revenue these companies can earn each year and does not control what lines companies charge individual consumers or what electricity retailers charge their customers. We expect that electricity retailers will be transparent on the extent to which changes in distribution changes are reflected in a consumer’s bill, consistent with the Electricity Authority’s Guidelines for communications about price changes. The Electricity Authority’s guidelines can be found here.
Default price-quality paths compared to customised price-quality paths
DPPs are intended to be a relatively low-cost regulatory option and are not designed to meet the exact needs of every lines company. Where more significant infrastructure investment might be needed, a customised price-quality path is likely to be a more suitable option as it can be tailored to a lines company’s specific circumstances.
Wellington Electricity’s CPP
Wellington Electricity owns and manages the Wellington electricity network which connects to approximately 166,000 homes and businesses in the Wellington, Hutt Valley and Porirua regions. In March 2018, the Commission approved $31 million of spending to allow Wellington Electricity to improve its network’s resilience to a major earthquake.