The competition watchdog this week released a report detailing its reasons for possibly imposing price control on Transpower. The commission last December said it intended to take control of Transpower's prices if it did not accept the company’s explanations for breaching price thresholds.
Late in 2005, Transpower announced it was proposing to increase prices by 19% from April this year. It raised prices by 13% in April 2004.
Commission chair Paula Rebstock said those increases were not justified and breached the threshold of limiting price increases to the rate of inflation minus 1%.
The timing of Transpower's price increases was not consistent with its forecast capital spending. The government-owned body had planned investments of NZ$3.4 billion, only a small proportion of which had been approved by the Electricity Commission, according to Rebstock.
The Electricity Commission is currently considering Transpower's NZ$500 million planned transmission upgrade through rural Waikato and into Auckland. It expects to make a preliminary decision next month.
“The Commerce Commission considers Transpower is effectively seeking to pre-fund substantial investments that have not yet been approved by the Electricity Commission,” Rebstock said.
“This could result in today’s consumers paying disproportionately for investments that will benefit consumers well into the future. It could also limit the scope for alternative investments.
“Even more significantly, the additional revenue Transpower will gain means that there is less incentive for the company to minimise costs, and this may inappropriately transfer risk associated with the investments from the company to consumers.”
Rebstock said the Electricity Commission might find Transpower’s planned investments to be prudent and approve them, but the Commerce Commission would continue to have concerns about the timing of price rises.
The commission opened its inquiry after Transpower reported breaches of the price path threshold of NZ$2.3 million for the July 2003-04 pricing year, NZ$67.9 million for 2004-05 and NZ$43.2 million for 2005-06.
The Commerce Commission intends making a final decision on Transpower by the end of next month.
