ELECTRICITY

Kiwi's warned about over regulation

Powerco boss Steven Boulton is thrilled his New Plymouth-headquartered company will effectively d...

However, he warns that New Zealand is sliding down the same slippery path of over-regulation as Australia is, and that will mean price hikes for consumers in the future.

"It's great in a national sense, and as a matter of pride, that these UnitedNetworks assets will be returning to New Zealand hands.

"It was a bit of a surprise when Aquila (UnitedNetworks' majority overseas owner) announced it wanted to sell, but we took the opportunity to expand further and this latest purchase will bring long term benefits," Boulton told EnergyReview.Net.

"There will be benefits to consumers, better services, economies of scale and a lowering of corporate overheads," said the Aussie.

Powerco will become New Zealand's largest gas distributor and second largest electricity distributor after the UnitedNetworks acquisitions, which will double the size of its network and give it gross assets of about $NZ1.7 billion and approximately 391,000 consumer connections. It will have to raise up to $NZ150 million in equity, however, to help fund the $NZ810 million purchase.

Its electricity distribution networks will extend to the Coromandel, Thames, eastern Waikato and Tauranga regions, on top of the existing Taranaki-Wanganui-Manawatu-Wairarapa network. Its gas networks will expand from most of Taranaki and the Hutt Valley-Porirua regions of greater Wellington, into Wellington city, the Hawke's Bay cities of Napier and Hastings, and the Manawatu-Horowhenua, including Palmerston North city.

Boulton said the New Plymouth head office would be expanded, a new control room constructed and up to 40 additional staff taken on before the end of the year.

However, he wondered why New Zealand seemed intent on increasing the regulatory environment for utilities; a move which had failed everywhere else it had been tried.

"New Zealand already has the lowest delivered electricity price in the developed world, partly because we do not have a heavy-handed regulatory regime.

"Australia has a heavy handed regime, the cost of which is exorbitant."

Victorian utilities spent about $A3-5 million a year meeting regulatory requirements, while the regulators themselves spent upwards of $A10 million a year enforcing those regulations, and the consumers ended up footing the bill.

"We are going down the same path in a big hurry."

He also rebutted recent criticism of the optimised deprival value (ODV) method of asset valuation, which has been used by many utilities since the 1990s.

"That's another industry scandal. ODV was an attempt to normalise methods of asset valuations, to give a common denominator."

Unfortunately some firms, excluding Powerco, had abused the methodology, incorrectly using ODV, which essentially uses replacement cost and not historical cost, to drive pricing structures and give a greater return on investments.

He admitted Powerco would pay between 1.6-1.85 times ODV for the UnitedNetworks assets, but said that was consistent with prices paid for past Powerco acquisitions or mergers of the last decade.

Boulton also rebutted criticism that he was essentially gambling with people's money because the Commerce Commission was still investigating the appropriate methodology for valuing electricity networks and, therefore he did not know the forecast rate of returns on the UnitedNetworks assets.

The commission, which has also been given the task of deciding if and how any price control of lines companies should be implemented, is due to report to the government before the end of the year.

Earlier this week UnitedNetworks directors recommended that neighbouring Vector buy the assets of the $NZ2.3 billion Auckland-headquartered utility, along with a simultaneous divestment by Vector of the eastern region electricity network to Powerco and Hawke's Bay Network for $785 million, plus the central North Island gas networks to Powerco for $220 million.

American energy company Aquila (formerly the Missouri-based Utilicorp), which owns 70.2% of UnitedNetworks, is selling its Australasian assets to reduce its debt and please international ratings agencies.

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