Transpower proposes new prices
Published04 Dec 2006
Transpower has told the Commerce Commission that it is advising customers today of its proposed prices for 2006/07 and 2007/08.
The Commerce Commission accepts that Transpower needs to notify customers now. Transpower's pricing year starts on 1 April, and the company is required to advise customers of prices at least three months in advance.
Transpower proposes to raise prices on 1 April 2007 by an average of 15.2% over the March 2006 level. This comprises a 12.2% increase backdated until 1 April 2006, compounded with a 2.7% increase to apply from 1 April 2007.
Transpower had originally announced that it would raise prices by 19% in 2006/07, and forecast an average 13% price increase over each of the four subsequent years, starting from 2007/08. The Commerce Commission believed these rises were not justified, and in December 2005 announced its intention to declare control of Transpower's transmission services.
In March 2006, Transpower announced it was seeking an administrative settlement with the Commission as an alternative to regulatory control being imposed. At that time, Transpower agreed to provide its customers with a credit equivalent to the planned price increases, effectively cancelling the 19% increase.
(Transpower has decided to continue that credit for the entire pricing year, through until 31 March 2007. Electricity lines businesses, or in some cases retailers, have been holding that credit. In April 2007 the electricity lines businesses and retailers will pass the credit back to electricity users.)
The prices announced by Transpower today mean that, instead of the 19% rise, Transpower customers will now face a 12.2% increase for the 2006/07 year.
However, customers will not feel this increase immediately as it will be recovered by Transpower through adjustments to future prices via Transpower's Economic Valuation Accounts. These accounts are designed to ensure that over time Transpower does not over or under recover revenue from customers.
On 1 April 2007, Transpower's customers will have to pay the increases which now apply for the 2006/07 pricing year (which average 12.2%) plus the planned increases for 2007/08 pricing year (which average 2.7%), a total average increase of 15.2%.
"Transpower and the Commission are still in talks over a possible administrative settlement, but the Commission accepts that Transpower needs to announce its prices now," says Commerce Commission Chair Paula Rebstock.
"While discussions continue on a possible administrative settlement, the Commission's preliminary view is that these are appropriate prices for these two years."
Any final decision on prices would be subject to consultation on an administrative settlement, or any other regulatory outcome, Ms Rebstock says.
"There will be a high level of transparency in these processes to assure the public and interested parties that the end result is in the best long term interests of consumers."
Ms Rebstock said that Transpower was working with the Commission to resolve matters in a way consistent with the purpose of the regulatory regime.
"The Commission remains optimistic that an administrative settlement can be reached," Ms Rebstock says.
"These price rises are substantially less than those originally announced by Transpower," says Ms Rebstock.
"That underscores the value of the regulatory oversight provided under the Commerce Act."
Ms Rebstock said that the Commission would take no further action if lines businesses breach their price path thresholds solely as a result of responding appropriately to the 19% increase announced by Transpower.
Background Transpower.
Reasons for intention to declare control.
The regime.
The companies are regulated by having thresholds set for them that govern the quality of services they deliver and / or how much they can raise their prices by each year. The price thresholds are linked to the Consumer Price Index rate of inflation.
Since the targeted thresholds regime was implemented in 2001, the Commission published its intention to declare control three times, of Unison Networks' electricity distribution services in September 2005, of Transpower's transmission services in December 2005, and of Vector's electricity distribution services in August 2006. In all three instances the Commission is now in the process of considering administrative settlements that, if agreed, would remove the need for control to be imposed.
Control.
Administrative settlement.