Transpower: We have no choice

Transpower says regulations it operates under leave it no option but to increase charges by 19 per cent. The state-owned transmission company's comments come after the Commerce Commission said it had launched an investigation into allegations of price-fixing in the wholesale and retail electricity markets.

Transpower spokesman Chris Roberts said yesterday that under the Electricity (Transpower's Pricing Methodology) Regulations, the company had to set charges according to its business plan, which was signed off by the Government.

He questioned whether Electricity Commission chairman Roy Hemmingway understood these regulations.

On Friday, Transpower said it was spending $295 million in the June 2006 year and $431 million the next year on improving the national grid.

But Hemmingway said the commission had approved only about $90 million of Transpower's investments and still had to assess four investment applications.

Roberts said the regulations which controlled Transpower's pricing said nothing about the Electricity Commission having to approve those investment plans.

"I think Hemmingway doesn't understand the regulations that we're under," he said.

However, Hemmingway said although the Electricity Commission did not have direct authority over Transpower's prices, the Commerce Commission did.

"It has indicated that, with respect to major investments, it's not likely to approve Transpower's prices based on investments that the Electricity Commission has not approved," Hemmingway, who is also an associate member of the Commerce Commission, said.

"I don't understand this issue with respect to their business plan.

"If the business plan includes a lot of investments that no one has approved, other than Transpower, I don't see quite how they think they can then raise their prices based on their business plan that no one has approved. I don't think the Commerce Commission would accept that rationale."

The 19 per cent rise planned by Transpower would amount to a 2 per cent price increase in electricity costs for everyone.

"For a monopoly to do that, they're going to have to provide significant justification, beyond what they've provided to date, to the Commerce Commission," Hemmingway said.

On top of the 19 per cent increase from June 2006, Transpower intends to make annual increases of up to 13 per cent a year for another four years.

Roberts said the Transpower charges made up less than 10 per cent of a typical household electricity bill.

Under its pricing regulations, if Transpower did not spend the capital it had predicted when it set its prices, it had to refund its customers the next year. Transpower had 46 customers, including lines companies and power generators and a few large industrial plants.

Transpower expected investment on the grid to increase from about $100 million a year now, to about $400 million a year during the next decade.

As well as increasing its charges, Roberts said Transpower was also substantially increasing its borrowing, above the present $1.5 billion of debt, and would be paying much less in dividends over the next five years.

"The money has to come from somewhere, so if it doesn't come from the consumer, and if we are already borrowing to the greatest extent, it would require a cash injection from the Government."

A decision on reducing profit levels would be for the shareholder - the Government.

Transpower recognised that as a monopoly it needed to be regulated but it was "between a rock and a hard place", with two pieces of legislation requiring it to act in different ways.

With the Transpower pricing regulations, it had to meet Commerce Commission requirements that it justify any price increase above the rate of inflation minus 1 per cent.

- NZPA