The Commerce Commission today 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 over coming years.
Commissioner Vhari McWha says promoting long-term consumer interests and helping ensure Kiwis receive value for money is at the heart of the Commission’s decisions.
“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.
“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.”
The average household’s monthly electricity bill will rise by approximately $10 ($120 annually) for the first year of the five-year regulatory period, which starts on 1 April 2025 (see detailed breakdown of costs here). Without the Commission’s decision to spread or ‘smooth’ revenue recovery over a five-year period, consumers could be looking at price increases of around $20 per month. After the first year, consumers can expect monthly bills to increase by an average of about $5 ($55 annually), in each of the remaining four years.
Ms McWha says 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, continue to test the capacity and resilience of the country’s electricity network.
“With much of New Zealand’s electricity grid built decades ago, renewal work is essential to meet the future needs of consumers. The revenue increases reflect the higher costs companies are facing, including the cost of borrowing, cost of materials and inflationary pressures since the last revenue review in 2019. Higher inflation and interest rates relate to about 55% of the increase in revenues.”
Transpower final decisions
The Commission has set Transpower’s maximum allowable revenue at a total of $5.9 billion for the next five years. This represents an increase of 44% compared to the previous five years. The Commission’s decision to smooth revenue increases means annual increases are capped at 16% in each of the first two years and 5% for the remaining three years.
Transpower submitted a detailed proposal to the Commission for its individual price-quality path, and had the proposal assessed by an independent expert. In its proposal, Transpower said its work programme was largely 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,” says Ms McWha.
She says the Commission remains concerned Transpower may not be able to recruit the workforce needed to deliver its work programme due to workforce shortages and a high demand for specialist talent.
“We have adjusted Transpower’s expenditure allowance to account for this workforce risk. Should Transpower provide evidence that it has recruited the necessary workforce, Transpower will be able to access those funds.”
Local lines companies final decisions
For local lines companies subject to revenue limits, the Commission has set maximum allowable revenues for the five-year period at a total of $11.5 billion. This represents an increase of 47% in real terms compared to the previous five years. However, revenue smoothing means increases are approximately 24% on average for the first year, with smaller increases in the remaining four years.
Although revenue limits are increasing, Ms McWha says the Commission has not allowed for all expenditure forecast by local lines companies, primarily due to uncertainty surrounding the need, timing, and scale of that spend.
“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 have the potential to 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,” says Ms McWha.
The Commission has also approved costs to enable 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.
Background
A 90 second animated explainer of the Commission’s regulatory role and decision on revenue limits can be found on the Commission’s website in English and Te Reo.
The final decisions on revenue allowances incorporate further analysis by the Commission and reflect feedback received on its draft decision, released in May this year.
Bill impacts
The Commission sets revenue limits that affect the transmission and distribution components of electricity bills. The transmission and distribution components of the average consumer bill are around 10.5% and 27% respectively.
From 1 April 2025, the distribution and transmission component of a monthly electricity bill is estimated to increase by $10 ($120 annually) on average per household for the first year of the five-year regulatory period, exclusive of GST, at a national level. This is equivalent to an increase of about 5% in the average household’s electricity bill. After the first year, consumers can expect monthly bills to increase by an average of $5 ($60 annually), in each of the four remaining years.
The increase to a household’s electricity bill will be different depending on where you live. In the first year, some regions will see average increases of $10 per month, while others will see average increases of about $25 per month.
This represents a smaller rise for most households than presented in the draft decision. This reflects a reduction in interest rates and slightly higher revenue forecasts for 2024/25 from local lines companies, partially offset by small increases in capital and operating expenditure allowances.
Transmission and distribution prices are determined by suppliers, consistent with the limits we have determined and in accordance with Electricity Authority methods and principles. Businesses may sometimes choose to recover a lower amount of revenue than the maximum allowed under the regulatory regime. Decisions to under-recover revenue should only be made where the local lines company is satisfied that they can still sufficiently invest in their network to maintain service quality.
Electricity retailers factor prices that lines companies choose to set into the prices consumers ultimately pay. This means actual price changes may differ from our estimates.
