Electricity prices for residential customers will rise for the next five years, after the Commerce Commission's draft decision to allow the national grid owner Transpower to increase its maximum allowable revenues by 43%.
The increase is smoothed by the Commission over five years. It is going up by 15% per annum for the first two years, and then by 5% for the remaining three years of the five-year timeframe, for a total of $5.8 billion.
For residential customers this will result in roughly an additional $15 a month on their bill, or $180 a year. That's for the first year, starting April 1, 2025. Over the four years after that, the Commission says monthly bills will increase on average by $5 annually.
The Commission adds the increases to household electricity bills will differ depending on location. Some areas will see increases of $10 a month on average, whereas in others bills will go up by an average of $20 a month.
While rising power bills is unwelcome news for consumers, the Commission says without the slower revenue recovery, price increases would be around $25 a month or $300 a year.
It's not just Transpower that'll be allowed to increase its allowable revenues: the Commission is proposing local lines companies can increase their earnings by 50% compared to the preceding five years, for a total of $12 billion.
Again, the Commission wants the increase to be smoothed, with a 24% hike in the first year, and then gradually increasing over time. How much exactly will be allowed depends on how regional growth unfolds.
“Some companies have forecast that they require an increase in investment that is as much as three times higher than their historical spend. The regulatory regime has a bespoke process to consider these large step changes in investment. This customised process is designed to give greater confidence through more detailed information, greater scrutiny, and an independent expert review," Commissioner Vhari McWha says.
Several factors are driving the revenue and ultimately, price increases. Transpower and local lines companies face higher costs and more expensive borrowing and materials, as well as inflationary pressures since the last revenue review that took place in 2019.
Older electricity distribution assets built in the 60s and 70s need to be maintained and replaced, and there is population growth and the electrification of transport and industrial process heat to factor in.
The Electricity Authority noted in 2023 that despite some 2600 giga-Watt hours annually of renewable energy generation is forecast to be online over the next few years, it comes from intermittent sources. For that reason, electricity spot prices over the winter period in particular are projected to remain high due to tight supply and the need to start up fossil-fuel generation to meet peak demand.
Energy Minister Simeon Brown said in December demand is forecast to increase by two-thirds by 2050, and added that the Government will make it easier to consent wind, solar and geothermal renewable energy projects to drive investment in new generation.
Commissioner McWha says maintenance and improvements to the electricity network now "will help keep the lights on in the future".
“As an essential service for all Kiwis, the affordability of electricity is important. We’re conscious that for consumers to get the electricity network they need, more investment is required. That’s why we’re proposing to increase the amount of revenue Transpower and local lines companies can earn," McWha says.
“However, we haven’t allowed for all of the expenditure that they forecast. We’ve taken the additional step of spreading the recovery of revenue by Transpower and local lines companies over a longer period to soften the impact of initial price increases on consumers,” she adds.
The Commission's draft decisions for Transpower and the local lines companies will now go into consultation over June and July, before a final decision is made in November.
76 Comments
IIRC correctly (happy to be corrected), one of the first acts of the privatised electricity companies was to change their depreciation basis from historical cost to replacement value. Thereby massively reducing their "profit" & tax.
What have they done with all the extra $ generated since to maintain their assets ?
Agreed! But you forgot to mention the massive dividends paid out to shareholders, the largest being guess who? Yep, the government! So effectively price rises are another form of tax as the government who still owns the majority of generation and ALL of Transpower is not spending any of that dividend back into the industry. Nor is their any desire from government for power price reductions as that would decrease their dividends. Privatisation of electricity has been an absolute disaster for the consumer!!!! Shipley and co should hang their heads in shame!!
Governments (national and local) are asking for their dividend providers to maximise short term dividends to halp pad out national and local finances. Just look at the recent CCHL example where the whole board quit because CCC wanted to bleed them dry so they could cover up the levels of rates increases needed.
Why have this run as a company and need to return a dividend to the government, but not other government services like:
- Police
- Fire service
- Schools
- Healthcare
- Roads
- NZDF
- DOC
etc.
All of these have some form of revenue stream already, obviously not enough to fund all their operations, but we've decided that they're a public good and that's fine. Why is electricity, which by the way all of these rely on to some extent, treated differently?
I'm hit by the continuing inflation surge and higher mortgage rates, but can fortunately pay these without stress. I know many cannot, in our bifurcated economy.
I'm fortunate, from a previously reasonable housing market and did not get spruiked into dangerously overpaying: more a 5DTI.
Household costs to rise coming into winter 2024: Called this one last year due to turbines being down in a Taranaki plant, needing full turbine replacement, and Huntley needing some parts for one turbine which was due to arrive this month after being ordered last year. I knew prices would rise, but this adds to the stack. But electricity is our future they tell us.
I guess the slant I intended was that they are pushing electricity for everything, now telling us the price will be hiked as well. While fossil resources will increase in price as scarcity kicks in over the coming decades, for now it is just another essential cost that will eat away at middle income earners already stretched budgets, and impact the poor more so. This also has a compounding effect when you look at peoples ability to save for things like a rainy day fund, to help their kids, purchase a house, or even a second hand fridge if the old one packs in.
But this is about costs for upgrades to distribution and transmission network... what's that got to do with the private costs of plant replacement for Contact (Taranaki) and Genesis (Huntly)? I think your understanding of how the power system works is broken.... Also, these changes take effect in April 25, not winter 24.
ABSURD.
1) We already have 110,00 households that cant afford power and are in power poverty.
https://www.auckland.ac.nz/en/news/2024/05/15/power-should-be-subsidise….
These massive increases will only make the situation worse.
2) There is no indication that ComCom has done a cost benefit assessment and looked at the distributional impacts on the poor and made any recommendations on how to address the issue.
3) It is absurd that Transpower pay a dividend and tax to the government. Power is fundamental to people's lives and the GDP of the economy & thus provides a very high socioeconomic return (think North Korea otherwise). It is impossible that the dividend and tax paid to the government will be spent by the government in a manner that returns a higher benefit / cost than retaining that funding within Transpower. There is also the deadweight cost loss of the dividend and tax circulating from Transpower to Govt to expenditure.
4) "the Commission is proposing local lines companies can increase their earnings by 50% compared to the preceding five years, for a total of $12 billion." The lines companies are monopolies and effectively extracting monopoly funding from ComCom for asset replacement. If it was possible to have perfect competition in power distribution then there is no way that that these price rises would occur.
The same argument exists for the lines companies as Transpower. It is impossible that the Councils and government will spend the dividends and tax in a way that produces a higher benefit/cost to NZ than for the lines companies to retain the funding.
NZ is being completely screwed over by a neoliberal approach to power pricing and the poor are even further screwed over.
NZ would (have been) be far far better off with non-profit SOEs for transpower and line companies with statements of intent to provide the lowest possible prices to NZ Inc whilst also maintaining and upgrading their systems in line with optimal asset management.
Who would have though that when something gets privatised that the focus is on return for the shareholder.
..... unless of course the privatised entity had specific targets around investment, growth and maintenance of its assets - or was that too obvious.
PS - i suspect we will provide the various companies with a ton of money and be having the same conversation in 5 and 10 years time.. ditto councils and water assets.
There's a lot of talk about privatization in here, but the article is about lines companies. Transpower are owned by the government, my local lines company (Orion) is owned by the Council. Have other lines companies been privatized or are we all conflating lines companies and gentailers?
As opposed to being run as what? Central government departments that..... return the dividends (internally) to government. Except with a whole lot less transparency and no requirement to prove that its investments meet a CBA like they have to do now with the Commission approving revenue.
Read what I wrote:
NZ would (have been) be far far better off with non-profit SOEs for transpower and line companies with statements of intent to provide the lowest possible prices to NZ Inc whilst also maintaining and upgrading their systems in line with optimal asset management.
While I concur that energy poverty is a thing, and a symptom of a wider societal problem, all of these power lines etc. were going to wear out over time. I get frustrated that people are up in arms about paying for the upkeep / expansion of the network. It is exactly the kind of short-sighted thinking that has seen our infrastructure, health system, schools etc. all slowly degrade over time as people voted for lower taxes and rates rather than ongoing investment. Therefore, the options are:
1: pay an extra dollar a day to expand the network. or,
2: Keep your dollar but expect problems in the future.
I struggle to see why this is even a debate.
Nope, people getting frustrated is not a sign of short sighted thinking at all. Frustrations are felt by the public towards councils and government entities who have clearly decided that high dividend payout ratios are 'better' than ploughing returns back in to their respective businesses. Maintaining and renewing the infrastructure that the public rely on should hold a far greater weighting than 'astroturf sportsgrounds', 'cycleways', 'swimming pools'. We're now paying for their largesse.
"There is no indication that ComCom has done a cost benefit assessment"... really? What do you think these proposals are then? The entire thing is a CBA, and that's the point of the Commissions' evaluation of them. And by opting to spread the increases over time, the Commission has tried to have regard for those who can't afford rapid increases.
But actually, the underlying logic of your reply doesn't make sense. You're against a neoliberal approach that has privatised power companies. OK, so instead would you prefer government departments? If so, then why are you complaining about a dividend being paid back to government then? Instead you want companies to retain the funding... which is a "neoliberal" approach!
And by the way, the current model – at least for Transpower anyway – is exactly to provide a statement of intent to provide the lowest possible prices in line with optimal asset management. And the way that is ensured is through he CBAs required by the Commission to approve increases in spending. All of this is exactly how it happens (but you still complain about it anyway).
Read what I wrote:
NZ would (have been) be far far better off with non-profit SOEs for transpower and line companies with statements of intent to provide the lowest possible prices to NZ Inc whilst also maintaining and upgrading their systems in line with optimal asset management.
Giving dividends and tax to the government and councils is sub-optimal as power is fundamental to GDP, produces a high B/C, and the government and councils are incapable of spending the dividends and tax to produce a higher B/C.
If ComCom has seen business cases they would have been for the investments, and it is very unlikely they have canvassed the distribution of the socioeconomic impacts and mitigations.
Only 43% FFS
in 2012, 4 investor owned, 2 investor/consumer owned according to https://ir.wgtn.ac.nz/handle/123456789/19227?sequence=1
Edit: I AssYouMe-d.
I vote infrastructure upgrades paid for with a levy on banks, economists, immigration consultants, developers, "educational institutions", real estate agents etc. basically anyone that lobbies for exponential population and economic growth and directly cashes in on it.
There is an alternative - generate power at your home, and cut out the middle-man. I recent installed a solarZero system (solar + battery) - No money down, monthly subscription fee, cash-flow positive from year 1. No brainer when you look at the forecast increases to transmission & distribution charges.
The forecast increases to transmission & distribution charges are directly linked to our intermittent energy 'investment". [Edit RCP figure was way too low.]
"A recent Boston Consulting Report stated that [$32.2] billion of investment in [transmission and distribution] infrastructure was required to enable new renewable generation. This equates to a significant rate of expenditure of circa $1.4 billion a year till 2030!
A 2022 sector funded research report, Re-Energise – Ngā Mahi A Māui, estimated that the sector will require an additional 700 engineers and construction workers per year, to not only grow the workforce, but to replace the natural attrition created by a retiring workforce."
https://rcp.co.nz/insights/does-new-zealands-high-voltage-transmission-…
not only grow the workforce, but to replace the natural attrition created by a retiring workforce
You forgot to add an extra hundred skilled workers to replace those hopping across the Tasman where work pipeline and remuneration looks more solid?
If the Aussie government begins tightening the screws on migration, expect even more skilled Kiwis to be poached by Aussie companies.
Where are you going to get your $32 billion from for your luxury beliefs chap? I love how you chastise for my "narrative" after you make some baseless predictions about the future.
"luxury beliefs - which are ideas and opinions that confer status on the upper class at very little cost, while often inflicting costs on the lower classes."
e.g. taking carbon taxes of factory workers who can't afford EV's and giving it to Swedish furniture behemoths to plant pine trees and conglomerates to build windmills and backup power stations.
Perfect timing for all those new EV's on the road and then throw in RUC in on top of that from next month. Like I said a year ago, in the end driving an EV will be no cheaper than driving an ICE vehicle, they did the same with diesel, it used to be way cheaper then more cars went diesel then boom up goes the cost of diesel. Add to it the massive extra cost of the EV to start with, the fact that everyone is complaining they eat tires and then that $20K solar system you need to put in to charge it to try and "Save Money"....cheaper to go ICE which will still be running in 15 to 20 years time when your EV is long dead and sitting at the scrap yard after it COST you money to get it taken away because we cannot deal with the battery recycling in NZ. My prediction, watch it go the full circle we will be back to much smaller and lighter turbo petrol cars.
The article is about transmission & distribution companies, not generation ones.
If you knew anything about the electricity generation industry, which obviously don't, you would know the companies have had to spend a fortune on capital costs, not only building new stations, but doing massive asset replacement and uprating for new compliance replacement. For example, Mercury have basically rebuilt all their Waikato stations with runner generator and transformer replacements, as well as a lot of uprated headworks. Contact just spent $1B on a new geothermal station. Genesis spent a fortune on canal civil works. Look at their annual reports.
"
"privatised electricity companies was to change their depreciation basis from historical cost to replacement value. Thereby massively reducing their "profit" & tax." The change to replacement value was the generation arm of ECNZ during the time when Dr Death was CEO. The privatised companies were Contact and Trustpower. You can look up the income of generation companies on-line. They are steady earners but not that profitable. None are spectacular. And you didn't talk about Opex, stay in business capital or new capital investment because it would spoil your rant.
The Government has no ownership in distribution companies. The lines companies, being monopolies, are prices and charges regulated
Insurance up by 20% pa announced yesterday, power up by 15% pa announced today, but hey, let's try to kill inflation by hiking the OCR… so that people don't have enough money left to feed themselves properly, heat their houses properly and clothes themselves properly.
Following H&J Smith.
https://www.stuff.co.nz/southland-times/news/133306763/hj-smith--123-ye…
After I caught out Genesis charging me Line Charges that were "incorrect" and thus getting a refund of about 50% for several years worth what did they do?
They changed the name of the charge to "Daily charge" this allowing to put in any figure they like. Cunning. Many are fooled this is the line charge.
Your power bill should separate the components correctly with the correct name.
eg:
Transpower charge
Local line Charge.
Electricity Authority Charge.
Energy.
That will stop the cunning p*#x
Last year Labour & MBIE permitted the electricity companies including Genesis to stop the low user rate & increase fixed daily charges by ~500% over 5 years
- fixed business incomes are much better for dividends than variable ones. God forbid that the increased daily charges be allocated to infrastructure maintenance
The Previous Labour government has already undermined investment in solar by removing the low daily charge. If these price increases come in the form of an increased daily charge, rather than increases to $/kWh then it'll be a further slap in the face to people who forked out $30,000 for solar panels and a tesla powerwall.
The experience of both Australia and the US is that encouraging domestic solar by charging less than the value of the supplied costs are just a subsidy for the rich paid for by the poor. It hasn't led to cheaper power, just a lot more transmission grid problems needing ever-higher equipment installation requirements.
Being grid connected provides massive benefits to hoses with solar, even if they have batteries. They get frequency, voltage and surge control. Even if they are not a net importer of power, they need it. Otherwise, why don't they go off-grid? The lines companies have to put in the same sized equipment, whether or not it is used 365 or 50 days a year just over gloomy winters. And they need to size it for peak loading. That is why high line charges makes sense.
We the taxpayers already paid for the construction and ownership of all of the Electricity providers, jeepers how that has kicked our backsides!! BIG TIME!! so the 52% owner on our behalf will continue to cream off the dividends, and we the consumers will still continue to fund any further infrastructure via massive price increases, how much are the other 48% shareholders contributing, please advise!! THIS IS SO WRONG!! dividends or if you like profits should be funding all of these costs of asset replacement, this needs investigating right now!! my power bills are $340 per month now for just the 2 of us, I guess there goes the garage drinks fridge and deep freezer and Electric blankets, I can't see where else we can economise, light up candles I guess!!!!! we are in our late 70's!
":taxpayers already paid for the construction and ownership of all of the Electricity providers" Never let the facts stand in the way of a rant.
Taxpayers paid very little of the distribution network. About 3000MW (a third of the generation ) has been built since Clyde. There have been major transmission projects built in last 25 years Whakamaru to Penrose line and converting DC to thyristors and roundpower just two that spring to mind for the grid.
Still relevant https://natlib.govt.nz/records/22707007
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