Transpower increases questionable

Friday, 25th November 2005
Transpower increases questionable

“The announcement by Transpower today that their charges would rise on average by 19% from 1 April 2006 and over the next 5 years average increases of 13% would be needed is questionable on a number of fronts”, said the Executive Director of the Major Electricity Users’ Group Ralph Matthes.

“Transmission capital expenditure is likely to increase and consumers will have to pay for approved costs. However the Electricity Commission has yet to consider, consult with interested parties or approve the budgeted capital expenditure that Transpower have based their increased charges. Why should consumers pay higher charges for expenditure that may not be approved?

“Growing demand as a result of a growing economy is likely to lead to more transmission capacity and therefore capital expenditure. Transmission is characterised by increasing economies of scale, ie over time as demand grows and larger capacity lines are used the unit costs decrease. The announced transmission charge rises are at odds with decreasing economies of scale. An explanation of why charges are increasing when they should be decreasing is needed.

This problem may be solved by the Electricity Commission in the yet to be finalised Transmission Pricing Methodology. If this is correct then Transpower should retract the announced price rises and wait until the Transmission Pricing Methodology is finalised.

“Transpower is already under investigation by the Commerce Commission for breaching their thresholds in prior years. It would seem sensible to avoid further breaches and possibly the situation of Transpower being found to have overcharged in prior years by holding aggregate charges until those investigations are complete,” concluded Mr Matthes.

ENDS

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