OPINION - Is Comcom going Big-Time or Teenie-Weenie?

ENERGY NEWS

Chris Mardon

Nov 4, 2024

The Commerce Commission is in the final stages of deciding how the next five years will map out for New Zealand’s lines companies.

Its latest price-quality reset is vastly more important than its three predecessors, which were steady-as-you go blueprints that sanctioned organic growth while keeping lines charges firmly in check.

Five years ago, the commission allowed electricity distribution businesses (EDBs) to earn 2.4 percent more than the previous five-year period. Forecast spending on capex increased a miserly $29 million. Tiny changes.

Not any more, based on smoke signals in the draft decision – an historically good indicator of what the Commission will unveil next month.

The Commission consulted on forecast revenue allowances of $12 billion over the five-years to 2030. This is a 50 percent jump in real terms compared to the previous half decade. Interest rates are a significant influence but looking at capex alone, the allowance could be 35 percent higher. These are massive changes.

Investment

In the pursuit of rewiring and decarbonising New Zealand, snowballing investment will substantially boost the business-as-usual aspect of what EDBs do – build and maintain power lines and switchgear for a not-too-distant future of higher electricity demand.

So, it looks like a done deal for BAU. But arguably the more important decision is the commission approving funding – and at what level - for non-mainstream work which is not recoverable from customers.

At present the Commission has flagged a small addition to business as usual, proposing to establish an Innovation and New Technology Solutions Allowance (Intsa).

It suggests capping the allowance at 0.5 percent of total revenues – which is $76 million over five years.

An INTSA allowance will allow EDBs greater access to funding to invest in innovative projects and non-traditional solutions.

An obvious example is EDBs installing hundreds of controllable EV smart chargers that collectively can be switched off at peak times.

Under current rules, these cannot be included as assets and therefore deliver no direct return to the EDB.

But they do give another weapon for EDBs and to help deliver load reduction at peak times and defer network spending.

Energy efficiency is another example, At present EDBs invest almost nothing in energy efficiency, as it’s not recoverable from consumers and can’t be called an asset.

An INTSA fund should encourage EDBs to invest in energy efficiency projects – such as home as enerbgy efficent lighting, inefficent appliance swap outs, and energy assessments.

These are good for  consumers and EDBs as they lower power bills and reduce peak loads.

While $72 million might seem a lot, it is miniscule compared to the $12 billion that EDBS will spend on traditional kit.

And $12 million a year spread across 15 EDBs doesn’t buy much.

At 0.6 per cent INSTA therefore risks being a rerun of the Innovation Project Allowance, set at only 0.1 per cent in 2020, which as the EBDs demonstrated, was barely worht getting out of bed for.

That’s why a group of submitters has been calling for the fund to be expanded to 5 percent of revenues, or $600 million over five years.

The 5 percent wasn’t dreamed up – it came from the Commission’s draft decision.

Ambitious

It put forward a “more ambitious” option because it was conceivable that the draft INTSA, while larger than the existing Innovative Project Allowance, “may not provide sufficient incentives to support more ambitious or transformational initiatives”.

The commission is correct in that view.

A five per cent INSTA would turn the dial sufficiently to encourage EDBs to invest in non-network solutions and energy efficiency.

In addition to turbocharging innovation, it  would satisfy the Commerce Commission, which is required under the Commerce Act to provide incentives for energy efficency, load management and line losses.

This is a crucial decision for the Commission, and it needs to get the signals right.

So will the theme song of INTSA be Big Time by Peter Gabriel, a song about leaving a small world and making a big noise? Or Itsy Bitsy Teenie Weenie Yellow Polka Dot Bikini, a novelty song about being too afraid to come out of the locker.

The commission has a choice to make.

Chris Mardon is managing director of Ecobulb, an energy-efficency company based in Christchurch.

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