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Commission Decides On Aurora’s Investment Plan, Proposes Additional Accountability Measures

Press Release – Commerce Commission

The Commerce Commission has today released its final decision in response to Aurora Energy’s (Aurora) proposal to fix its electricity lines network in Dunedin, Central Otago, and Queenstown Lakes.

In June 2020, Aurora applied for a customised price-quality path (CPP) in which it forecast it would need $609 million over five years to replace failing infrastructure and run its network.

After closely scrutinising Aurora’s proposal the Commission has decided it has made the case that significant investment is needed to make its network safer and more reliable. The Commission has allowed it to recover a maximum spend of $563 million over five years – $46 million less than Aurora’s original proposal.

The package of measures released today include:

• capping Aurora’s annual revenue increases to approximately 10% per year, to moderate price increases for customers,

• allowing $327 million of the proposed capital expenditure for new assets and network improvements,

• allowing $236 million of the proposed operating expenditure for Aurora to maintain and run its network,

• setting minimum standards for power outages and interruptions on Aurora’s network at levels that reflect its actual performance in recent years, so reliability will stabilise at current levels then gradually improve over time, and

• a proposal for additional reporting requirements on Aurora to improve transparency around its future performance.

“Taken together, the package of measures we have released is focused on the long-term benefits to consumers. Aurora must now deliver on its proposal,” Associate Commissioner John Crawford said.

“Aurora’s historic underinvestment has led to the performance of its network deteriorating. Without this investment, its network will continue to deteriorate, safety incidents will increase, and its customers will experience more frequent and longer outages.

“We recognise the depth of feeling held by consumers about the position the business is in and the impact on bills this extra spending will have, particularly when we are entering winter when energy requirements increase.

“While this decision substantially reduces the increase in lines charges compared to Aurora’s proposal, we are conscious that the impact on electricity bills will still be significant.

“To help mitigate the impact of increased bills we have capped Aurora’s annual revenue increases at a level of approximately 10% per year,” Mr Crawford said.

Revenue that is deferred as a result of this cap will need to be recovered in the next regulatory period from 2026 onwards.

Aurora has already announced new line charge increases that come into effect from 1 April 2021, with prices expected to rise by between $4 and $10 per month for the standard residential customer, depending on usage and where they live.

While there are a number of variables that make it difficult to provide estimates for years further into the future, we have estimated that monthly lines charges for residential customers will increase by between $32 to $51 by 2026, depending on where they live.

Overall, the Commission has approved more expenditure than was proposed in its draft decision. This is largely as a result of further analysis of evidence provided by Aurora that made the case that the spending was justified.

“We have not approved some aspects of the proposal that we consider were not justified or necessary in the next five years,” Mr Crawford said.

Today the Commission also released for consultation its draft decision on additional reporting measures that are designed to improve the ability of customers to hold Aurora to account. These would require Aurora to publish a yearly report on its progress on delivering the investment plan, present this report to customers directly, and report more clearly on service quality and regional pricing issues.

“We heard from Aurora’s customers their lack of confidence in Aurora’s ability to deliver on its plans. These measures aim to address that, but we also expect Aurora to improve its relationship and engagement with the communities it works in and for.

“We would like to thank the many customers and stakeholders who have engaged with us throughout this process. Their feedback has been valuable and important to shaping our decision. It has taken many years for the issues on Aurora’s network to materialise, and it will take some years to fix,” Mr Crawford said.

The full reasons paper detailing our decision, supporting material, and our draft decision on additional disclosure measures is available at www.comcom.govt.nz/aurora. Submissions on the draft decision on additional disclosure measures will be open until 10 May 2021.

Background

Aurora Energy owns and operates the poles, lines, and other equipment that distributes electricity from Transpower’s national grid to more than 90,000 homes, farms, and businesses in Dunedin, Central Otago, and Queenstown Lakes. Aurora Energy is a wholly owned subsidiary of Dunedin City Holdings Limited, owned by the Dunedin City Council.

Aurora Energy’s definition of a standard residential household is one which uses 9,000 kilowatt hours per year. The Commission’s price estimates are based on the median usage of a residential consumer in each of Aurora’s regions and are broadly comparable.

Consumer electricity bills contain a number of components, including line charges from Aurora, transmission charges, and charges from electricity retailers. The Electricity Authority is responsible for overseeing the pricing methodologies of these components.

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