United hits out at price rises

By Mark Reynolds

State-owned national electricity grid operator Transpower has been accused of hiking power line charges, just as regional network operators are about to be slapped with tough new Government price controls.

United Networks, which owns power line assets in Auckland, Wellington and the Bay of Plenty, said Transpower had proposed a 3 per cent rise in prices, retrospective to April 1.

Transpower disputed that claim, saying its new prices would result in an overall drop in nationwide power transmission fees. But Transpower did concede it would make a higher return on its assets this year than the regional network operators were likely to.

Transpower's statement of corporate intent - set by the Government - will allow the company to make a 7.6 per cent return on its weighted average cost of capital this year. That compares with the average 5.7 per cent return on equity regional lines companies extracted from their customers last year.

The disparity in rates of return by the national and regional line businesses is expected to make it difficult for the Government to justify the tough new price controls it will impose following this week's Budget.

"Surely the Government must set the example and not obscure their increased charges behind the visibility and reputations of line companies," United said in a fact sheet distributed to industry participants.

United, which is controlled by Utilicorp of the United States, said increased and ill-conceived regulation would damage New Zealand's reputation in the international investment community.

"Lines companies cannot be expected to invest in the upgrading of an ever aging electricity infrastructure ... in an unstable regulatory and investment client," it said.

The Government has said its controls will be based on a formula that restricts price changes to less than the rate of inflation. With inflation running backwards, that could see lines companies forced to actually lower prices.

United said its charges make up about a third of the average household power bill, while generation costs account for 44 per cent, retail costs take 9 per cent and Transpower's charges absorb 13 per cent.

Transpower officials said some areas of its pricing had increased, but only where extra investment was needed in specific assets. Its general manager for sales and marketing, Bill Heaps, said the few price increases reflected a user-pays philosophy.

He said Transpower had devalued its assets by $500 million last year and that would result in an overall drop of $12 million in its revenue and that its return on its cost of capital was based on market interest rates at April 1.

"If rates move down over this year then that will be reflected in our future prices."