Commission preparing to assess Aurora Energy’s proposed $400 million investment plan and associated price increases

The Commerce Commission has published an introductory paper outlining its role ahead of electricity lines company Aurora Energy (Aurora) submitting its investment plan.

Aurora, which supplies electricity to 90,000 homes, farms and businesses in Dunedin, Central Otago and Queenstown Lakes, is expected to apply to the Commission in June to spend approximately $400 million over the next 3 years on its network to address safety and reliability issues.

Aurora says its investment plan is to address historic under-investment in its network which has resulted in a gradual deterioration of its equipment including lines, poles and transformers. In recent years this has resulted in a higher number of safety incidents and an increasing number of unplanned power cuts.

There is likely to be significant increases to power bills from April 2021 as Aurora seeks to recover the costs of the investment from its consumers. Final proposed price increases will be known in June when Aurora submits its investment plan. However, under its draft plan which it consulted on, Aurora estimated an average household’s monthly electricity bill would increase by 18%. This equates to increases in residential line charges of up to $21 a month in year 1, followed by up to an additional $10 more a month in both years 2 and 3. Aurora’s estimates are dependent on several factors, including how power companies choose to pass on the charges.

“It’s clear that significant investment is needed in Aurora’s network. It’s our role to scrutinise Aurora’s plan to decide the maximum revenue it should be allowed to recover from consumers to carry out its plan and over what period of time,” Associate Commissioner John Crawford said.

“We understand that now, more than ever, household incomes will be strained, especially in light of COVID-19. Many consumers will be struggling to pay their bills while needing a reliable electricity supply.

“A key consideration for us in our upcoming assessment is balancing the cost to consumers with the urgent need to fix the network.”

As part of its assessment, the Commission will be reviewing Aurora’s consultation with its consumers. It will also be undertaking its own consultation.

“Due to COVID-19 we anticipate being unable to hold face-to face public meetings. However, we are exploring alternative options to get consumer views on our issues paper in mid-2020 and our draft decision before Christmas,” Mr Crawford said.

“Throughout our upcoming assessment process we want to hear from consumers about what they care most about in Aurora’s proposal. For example, is it the affordability of electricity, the management of power outages while the work is undertaken, or the safety and reliability of the network. We also want to know how well Aurora has communicated its plan to those affected, how it should be held to account for delivering on its plan, and how consumers want the Commission to engage with them, especially given COVID-19 restrictions.”

The Commission is due to make its final decision on the investment plan in March 2021, with consumer price increases taking effect from 1 April 2021.

The introductory paper, a fact sheet on the investment plan and more information on the project can be found at www.comcom.govt.nz/aurora

Background

Who is Aurora?

Aurora Energy owns and operates the poles, lines and other equipment that distribute electricity from Transpower’s national grid to 90,000 homes, farms and businesses in Dunedin, Central Otago and Queenstown Lakes. Aurora is a wholly owned subsidiary of Dunedin City Holdings Limited, owned by Dunedin City Council. Aurora’s charges are built into power bills and are something its consumers are required to pay no matter which power company they are with. Typically, electricity distribution charges make up about a quarter of an average residential consumer’s power bill.

Regulation of Aurora

As Aurora is a monopoly and its consumers have no choice but to connect to its network, the Commission regulates the total amount of revenue it can earn from its consumers and the quality of service it must deliver. We do this by setting revenues and quality standards for local lines companies across New Zealand once every 5 years. However, if a lines company needs to invest substantially more in its network, it can submit an investment plan to the Commission seeking approval for increased revenues to recover this investment.

Court proceedings

Separate to this investment application, in March 2020 Aurora was penalised almost $5 million by the High Court for breaching its network quality standards between 2016 and 2019 in proceedings brought by the Commerce Commission. Aurora admitted to under-investing in its network, leading to a significant proportion of its equipment being in a deteriorated state, resulting in an increasing level of power outages.

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