Warning of big hit in price of power

Photo / NZ Herald

A group representing big power users says consumers could pay up to $531 million a year more than they should if Transpower and lines companies get their way in a price review.

The Major Electricity Users Group says that amounts to between 4 per cent and 5 per cent of average power bills.

Its executive director, Ralph Matthes, said that was more than the estimated increase in electricity prices as a result of the emissions trading scheme.

Transmission and lines company distribution charges make up about 37 per cent of residential power bills and a Commerce Commission review of what can be recovered from investment in capital is under way.

Transpower is in the midst of a $3.8 billion, five-year plan to upgrade and although it has said the rate of increase will go up, it is necessary to secure the national grid.

The state-owned enterprise this year reported a net profit of $142 million, up from $136 million the previous year.

However, a fortnight ago it warned that its profit could fall by $18 million by the end of the 2011-2012 financial year.

Lines companies say that without adequate rates of return on capital there is no incentive to invest.

The commission must determine the final "input methodologies" by the end of this year.

Matthes said a rate set too high would flow through into the line charges.

"Even if no new investment is made firms benefit from the higher return on past expenditure."

He said that there was also a danger of under-investment in electricity infrastructure if the rate was set too low.

His group believes the commission has proposed a flawed model to determine firms' costs of capital.

"It is arguable that the commission should err in favour of encouraging new investment," Matthes said.

"But the figures currently on the table are excessive."