The Commerce Commission’s decision to cut electricity lines and gas pipeline companies’ weighted average cost of capital (WACC) is good news for households, but Consumer NZ had been hoping for more.
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Commerce Commission Deputy Chair Sue Begg said reducing the margin that regulated businesses could earn on their cost of capital was expected to save consumers about $45 million a year.
“And this reduction in the WACC margin should mean regulated businesses subject to price-quality paths will see their rate of return reduce by about 24–28 basis points per annum,” Ms Begg said.
The Commission’s work on the WACC was in response to the High Court judgment last year, which questioned the WACC uplift. The Court considered the use of the 75th percentile was not supported by sufficient evidence. The revised decision set it at the 67th percentile.
Consumer NZ, in a joint submission with the Employers and Manufacturers Association Northern Inc and Major Electricity Users’ Group, had pushed for a cut to the 50th percentile.
The WACC is a critical part of the calculation of the maximum average prices that lines companies can levy. As natural monopolies, the companies are regulated under the Commerce Act. The commission is responsible for determining average prices under the Act.