Commerce Commission Proposes Price-Quality Path for Chorus

The Commerce Commission has issued its draft decision on the price-quality path for Chorus Limited (CNU) for its second regulatory period (PQP2) from 2025 to 2028. The draft decision sets annual revenues between $908 million and $1,018 million, including pass-through costs. However, this decision is based on draft expenditure allowances from April 2024 and does not incorporate additional information provided by Chorus. The final expenditure allowances will be determined in August and reflected in the final price-quality determination in Q4 2024.

Key elements of the draft decision include:

• Tilted annuity depreciation to avoid a significant wash-up balance
• Draw-down of the PQP1 wash-up balance within PQP2
• Revenue profile smoothing
• A 'draft estimate' vanilla WACC of 7.71%
• A new quality standard for provisioning
• Update settings for CPI wash-up in year 1 of PQP2

Chorus will review the draft decision and focus on ensuring reasonable allowable revenues and quality standards for positive fibre end-user outcomes. The draft decision indicates a potential error in the application of fibre Input Methodologies to pass-through costs, valued at $60 million, which Chorus disputes.

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