State-owned national grid operator Transpower intends to raise prices by double-digits to help pay for its projected $5.3 billion spend on infrastructure over the next five years.Transpower chief executive Dr Patrick Strange said on Friday that custo
State-owned national grid operator Transpower intends to raise prices by double-digits to help pay for its projected $5.3 billion spend on infrastructure over the next five years.
Transpower chief executive Dr Patrick Strange said on Friday that customers could expect a “couple of years” of double-digit price increases as new projects are launched.
This compares to a 1% price increase on April 2010 and a 4.5% increase in 2009.
“But we’ll still be pretty good value for money,” Dr Strange said.
Transpower’s transmission charges currently comprise about 8% of residential and commercial power bills and are forecast to stay below 10% over the next ten years, despite the double-digit increases, Dr Strange said.
The exact figure will depend on the Commerce Commission’s decision on acceptable rates of return on cost of capital, part of a number of decisions on pricing due by the end of the year.
Major Electricity Users’ Group executive director Ralph Matthes has challenged Transpower’s submission to the Commerce Commission on cost of capital.
Mr Matthes said that submissions on behalf of Transpower to the Commerce Commission, by Cameron Partners and economist Graeme Guthrie, argued for adjustments that could result in the cost of capital rate being pushed over 9%.
Transpower had assumed a rate of return of 7.7% in its latest statement of corporate intent 10-year business plan to government.
The difference between the two figures is worth $88m per year in transmission charges, Mr Matthes said – twice the projected savings from Transpower’s HVDC inter-island pole replacement.
Asked to explain the discrepancy, incoming Transpower chairman Mark Verbiest said only that Transpower’s request was “not out of kilter” with overseas situations.
“It’s the Commerce Commission’s decision at the end of the day,” he said.
Transpower’s planned $5.3 billion infrastructure spend would go ahead even if Transpower fails to achieve a rate higher than 7.7%, Dr Strange said.
He suggested that, for the customer’s benefit, it is “much better to allow a little profit than risk under-investment."
Transpower estimated this month that the commission's interim decision to set a cost of capital rate of 7.06% for the 2011/2012 year will shave $4m off profit in the current financial year and $18m off projected profit in 2011/2012.
Transpower reported a profit of $142.4 million for the 2010 fiscal year.
The company plans to spend $1 billion in capital expenditure in the coming year, compared to about $200m in 2007 and less than $60m per year through the 1990s.
It expects that no dividends will be paid to government until 2012/2013.
