Higher WACC percentile needed
ENA has called for the Commerce Commission to increase its weighted average cost of capital (WACC) percentile to the 75th percentile in its recent submission on the Input Methodologies (IMs) cost of capital.
Moving to the 75th percentile would result in an increase in the WACC of approximately 0.23 percentage points, leading to an approximate $120 million increase in the total allowable revenue for EDBs subject to the default price path.
This increase is needed to reflect the increased cost of under-investment tied to the electrification of transport and industry in New Zealand.
As New Zealand moves away from fossil fuel-based energy sources towards electrified transport and industry, the risk and cost to consumers of underinvestment by EDBs will grow.
Analysis conducted by CEG, on behalf of the ENA, demonstrates that the cost to consumers of under-investment by EDBs has increased substantially and will continue to grow.
CEG illustrates that the Commission’s use of the 67th WACC percentile doesn’t accurately reflect the environment EDBs operate in and sets out the case for the use of the 75th percentile.
In addition, the ENA submission makes several other suggestions to improve the WACC framework within the IMs. Alongside these technical alterations, the ENA submission sets out how the IM WACC framework can and should incorporate the consideration of the financeabilty of EDBs.
The ENA WACC submission alongside the expert reports from CEG and NERA can be found on the ENA website here.
