12 Jan 2021

Aurora Energy sounds warning over price decision

8:34 am on 12 January 2021

By Grant Miller of Otago Daily Times

Aurora Energy says the power price rises mooted for Otago residents will not be enough and is pleading for some residents to be charged hundreds of dollars more per year.

A silhouette of power lines.

Photo: RNZ / Cole Eastham-Farrelly

The company slated the Commerce Commission after the release of a draft decision about pricing, arguing Aurora's ability to deliver its programme would be harmed, heightening safety and reliability risks in the medium term.

It warned its essential works and reinvestment programme could be significantly compromised and the company might be forced to shed more than 40 staff.

In the draft decision residents face power price increases of up to an average of $876 per year by 2025-26 for heavy users in Central Otago.

But if the Commerce Commission relents to pressure and agrees to Aurora Energy's original plan, the worst-hit residents will face even larger increases.

The Otago lines company's leadership was so vexed by the commission's draft decision that chairman Steve Thompson requested an urgent meeting with commissioners.

He said he had little confidence the commission appreciated the "real-world consequences'' of its proposed decision.

The commission responded that it was committed to running a transparent process and it would not open up an alternative channel for Aurora to engage with it.

The draft decision about Aurora Energy's proposal to customise its prices and quality standards was released in November and the company provided formal feedback last month.

Left unchanged, the draft decision would mean Aurora would be allowed to spend $523.1 million over five years to replace failing infrastructure and run its network, rather than the $609.3 million it wanted to recover from customers for the purpose.

The commission would allow $207.7m of the $252.9m Aurora proposed to spend on maintaining and operating its network and $315.5m of the $356.3m Aurora proposed for capital expenditure.

Aurora has historically under-invested in its network of poles, transformers and lines and the safety and reliability of the network have deteriorated.

An independent review of Aurora's network identified more than 300 overhead line, pole and crossarm failures between 2015 and 2018. Sixty-one were classed as serious-hazard events.

The Dunedin City Council-owned company was fined $5m last year for breaching quality standards in 2016-19.

Customers are facing significant price rises, as the company seeks to fix its problems and control its debt.

Aurora chief executive Richard Fletcher said proposed reductions in non-network operating expenditure would set the company back significantly.

The draft decision would have a serious impact on the ability of the business to deliver its essential works programme, Fletcher said.

Setting the operational expenditure allowance at such a low level was incomprehensible, Aurora said in its formal feedback.

The commission determined Aurora might need to cut staffing levels by about 20 full-time-equivalent positions, but Aurora put the number at about 43.

A proposed cap on revenue growth of 10 percent from annual price increases would place significant pressure on the company's balance sheet, Dr Fletcher said.

Releasing the commission's draft decision, associate commissioner John Crawford said Aurora's proposed capital spending was generally well founded.

"We do, however, consider Aurora has overestimated the amount of money it needs to run its network, which has led us to propose a substantial reduction of $45m in its operating spending."

In its submission, Aurora said the draft decision conditions would result in recovery of any required transmission investments being deferred, providing a strong incentive not to enter into any new Transpower investment contract. That would place the power supply to the Queenstown community at risk.

Fletcher said Aurora's average line charges started from a relatively low base and would rise to about the average of other New Zealand lines companies by the end of the five-year period.

In its summary, the commission commented Covid-19 had severely affected the local economy and an increase in energy bills would come at a difficult time for Otago communities.

Otago consumers had expressed frustration.

"We understand that they want a safe and reliable electricity supply but we recognise they remain deeply concerned about whether they can afford to pay for it.''

The commission has also set network outage targets at levels that broadly reflect Aurora's performance in the past five years.

That should at least stop customers from receiving a less reliable service.

The commission is due to make its final decision about pricing at the end of March.

- This story was first published on the Otago Daily Times website.

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