Aurora supplies electricity to Dunedin, Central Otago and Queenstown Lakes and the Commerce Commission says that the company has historically under-invested in its network and in recent years this has resulted in an increasing number of safety incidents and unplanned power cuts.
In a statement released on Wednesday, the Commission said that to fix its network, Aurora has signalled it requires significant investment over the next decade, and in June it made an initial application to the Commission for $383 million over the next three years - approximately double its allowances for the previous three-year period.
“To pay for this investment, Aurora is proposing price increases to residential power bills of approximately $20-30 a month over the three-year investment period depending on where a consumer lives. If the Commission approves a default five-year investment period, this would result in further increases in years four and five of approximately $5-6 a month,” the Commission said.
“Aurora has also signalled it will make a second investment application for a period of five years to address longer term issues on its network.
“The Commission’s role in Aurora’s investment proposal is to set network reliability standards, as well as determining how much money it should be allowed to recover from its customers to carry out its plan and over what period.”
According to the Commission, the issue of Aurora’s approach to regional pricing is for Aurora and the Electricity Authority, while calls for funding to come from elsewhere are for Aurora and its owners, Dunedin City Holdings and Dunedin City Council.
Associate Commissioner John Crawford says the Commission has identified a number of key issues it wants consumer and stakeholder feedback on including options for minimising consumer price shocks.
“We are considering if spending could be deferred, reduced or recovered over a longer period to soften price shocks. However, in making these decisions we also have to consider Aurora’s financial stability and its ability to complete necessary work to fix its network,” Commission Crawford says.
“We want to hear consumer preferences for price increases. For example, would they prefer prices to increase in gradual and steady increments or price increases to be smaller in the first year, followed by larger increases in the following years to give more time to prepare. We also want to know if consumers are willing to pay more in total due to interest costs in order to smooth the price increases over a longer period.”
Other topics the Commission wants feedback on include:
- The length of the investment period. By default, investment applications are for a period of five years. However, Aurora has only applied for three years to allow it more time to improve its asset data to help inform its second investment application. Aurora’s proposed allowance over five years is $609 million
- Consumer preferences on the communication, timing and management of planned and unplanned power cuts while Aurora works to fix its network
- Consumer and stakeholder confidence in Aurora’s ability to deliver on its plan to time, budget and to a high quality, including how Aurora should be held to account for completing the work
- Whether the COVID-19 pandemic has changed consumer feedback on Aurora’s proposal and how the Commission should account for growth and demand uncertainty caused by the pandemic
- Ensuring Aurora’s proposed spending is cost effective in areas like safety improvements, tree trimming, staffing and business costs and that it is targeting the right equipment for replacement at the right time.
The Commission has said it expects to make its draft decision in November and a final decision in March 2021, with Aurora’s new revenue limits, reliability standards and consumer price increases coming into effect on 1 April 2021.
To access the issues paper, including a consumer summary and submission form, along with more information on the project, click here.