The Commerce Commission has confirmed a significant change in how it calculates financing costs for regulated infrastructure in New Zealand. This new approach is designed to provide greater stability for consumers and businesses by minimizing the impact of short-term interest rate fluctuations on regulatory settings.

Associate Commissioner Nathan Strong emphasized the importance of financing costs in regulation, noting that infrastructure providers must attract investment to maintain essential services. The Commission will now use a five-year trailing average to estimate the risk-free rate for calculating interest rates applicable to debt held by regulated sectors, including fibre, electricity, gas networks, and some airports.

This change aims to reduce the influence of short-term interest rate changes on regulatory settings, thereby supporting ongoing investment in essential infrastructure. Previously, interest rates were determined using a three-month financing window before each five-year regulatory period, which could lock in short-term rate fluctuations.

The new averaged approach will provide regulated businesses with greater certainty in their debt management strategies as they prepare for upcoming regulatory periods. The Commission plans to consult on remaining design and transitional matters before the end of 2026, with final decisions expected in Q3 2027. The new approach will take effect in 2029 for Chorus, 2030 for electricity lines businesses, and 2031 for gas pipeline businesses.

Under Part 4 of the Commerce Act, the Commerce Commission regulates monopoly infrastructure providers, including major airports and local electricity and gas companies. The Commission sets rules for how these businesses can recover their expected efficient costs, including interest costs on debt. The review of the Common cost of capital input methodologies for these sectors began in 2025 and is set to conclude in 2027, with a draft decision published in March 2026.

The final decision to adopt a trailing average approach was supported by both regulated suppliers and consumer representatives, indicating a consensus on the benefits of this new method.