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Wellington Electricity gets approval to spend $31million on earthquake readiness

Press Release – Commerce Commission
The Commerce Commission has approved Wellington Electricity’s application to invest an additional $31 million to improve its network’s resilience to a major earthquake.

In December 2017, Wellington Electricity made an urgent application to the Commission to increase its prices to fund earthquake strengthening its substations, and purchasing emergency equipment and critical spares.

The application followed a Government Policy Statement issued in light of the 2016 Kaikoura earthquakes, which increased the risk of a major earthquake occurring in Wellington and highlighted the capital city’s vulnerability to seismic activity. The statement outlined the Government’s expectation that the Commission consider options to allow Wellington Electricity to recover resilience-related expenditure that was not anticipated when its price limits were set in 2014.

“Our final decision is essentially unchanged from our draft decision. We remain satisfied that the expenditure is needed and has been costed appropriately to ensure Wellington’s network is better prepared to withstand a major earthquake,” Commissioner Dr Stephen Gale said.

“A key feature of our decision has been to set a resilience quality standard that incentivises Wellington Electricity to complete this urgent work. In response to feedback on our draft decision we have refined the standard, making it clear that if Wellington Electricity does not complete the work, money provided will be returned to consumers through lower prices.”

We expect the investment will result in a typical Wellington Electricity consumer’s monthly bill of $185 increasing by about $1.70. However, the total price a consumer pays also depends on other components including generation, transmission, and retail which make up the majority of a consumer’s electricity bill.

“While the application has been fast-tracked, I want to reiterate that this is a one-off in light of the unique set of circumstances and the importance of the country’s capital city being able to function to the fullest extent possible during and after a major emergency,” Dr Gale said.

The customised price-quality path will apply from 1 April 2018 to 31 March 2021.

The final decision can be found here.

An infographic illustrating the decision can be found here.

Background
Wellington Electricity
Wellington Electricity distributes electricity to approximately 166,000 homes and businesses in the wider Wellington region. As a monopoly electricity supplier, the Commission sets the maximum prices Wellington Electricity can charge and minimum quality standards it must meet through a default price-quality path (DPP). However, in applying for a customised price-quality path, the Commission must take account of Wellington Electricity’s specific circumstances to determine a new set of prices and quality standards. More information about customised price-quality regulation can be found on our website.

Government Policy Statements (GPS)
A GPS is not a direction by Government. However, under Section 26 of the Commerce Act, the Commission must have regard to it, subject to our overall requirement to promote the long-term benefit of consumers under Section 52A of the Commerce Act.

News from Wellington Chamber Of Commerce
Wellington Chamber of Commerce has welcomed the Commerce Commission decision approving Wellington Electricity’s earthquake readiness plan.

“The Chamber has long been on record urging greater readiness and resilience. This work is simply about providing contingency in the case of earthquakes,” says John Milford, Chief Executive of the Chamber of Commerce. “This is about ensuring readiness, and the work will also provide a direct economic benefit from investing in readiness equipment, which would allow for the earlier restoration of power to improve community welfare and economic recovery following an event.

“Given the marginal increase per customer per month, we believe it’s a key step in the right direction towards improving our electricity readiness in the Wellington Area.

“We know there is much more work to be done in the area of electricity resilience to enable our recovery following a large earthquake, but this is an interim step to a wider resilience plan incorporating other Wellington lifelines utilities and investment decisions.”