Transpower announced the average 19% increase in its transmission charges last Friday, with chief executive Ralph Craven saying Transpower had to fund a level of investment in the national grid not seen for a generation.
“Capital investment in transmission networks is nearly always lumpy - with long periods of modest investment interspersed with shorter but significant periods of large investment,” Craven said.
Transpower’s program of significant new investments would deliver a national grid able to meet customer needs well into the future, but also required an increase in it capital budget from NZ$112 million in 2004-05, to NZ$295 million in 2005-06, and a forecast NZ$431 million in 2006-07, he said.
Transpower was forecasting annual transmission price rises of around 13% would be needed over the next five years to accommodate this capital expenditure program, said Craven.
But commission chair Paula Rebstock said at the weekend that Transpower could exceed regulated price thresholds only if the increases were for investments that had been approved by the Electricity Commission.
“The Commerce Commission will not permit Transpower to put in place its announced price increases unless it is satisfied those increases are justified,” Rebstock said.
The proposed 19% increase announced by Transpower – which is subject to the Commerce Act regulation of electricity lines businesses - was clearly outside the allowed “CPI (consumer price index) minus one percent” threshold, according to Rebstock.
The proposed increase had not been scrutinised by independent investigators, either the Electricity Commission or Commerce Commission.
"In light of the previous breaches by Transpower of the price threshold, and the additional increases announced, the Commerce Commission will urgently consider whether it is in the interest of consumers to move to the next step of issuing a notice of intention to declare control of Transpower," Rebstock said.
The Electricity Networks Association – which represents New Zealand’s lines companies excluding Transpower – believes government-imposed regulation is getting out of control.
“It’s just too complicated these days,” ENA chief executive Alan Jenkins told EnergyReview.net today.
"I can understand Transpower’s position, they need to spend considerable money. The industry is rife with monopolies that are being driven by government-imposed policy.”
He said the whole industry needed less regulation, not more, and it was unfair that electricity generators could increase their prices by up to 40%, while lines companies were constrained by the “CPI minus X” approach.
But Major Electricity Users Group executive director Ralph Matthes also questioned the size of Transpower’s proposed price increases.
New Zealand’s inflation rate is currently about 3.5% per annum, meaning Transpower could raise its transmission prices next year by only about 2.5% without risking incurring the wrath of the Commerce Commission.
