Transpower reports earnings drop

Transpower has reported an 11% decrease in earnings for the 2011 year compared to the year earlier.

The national grid owner and operator released its annual results for the year on Tuesday, which showed earnings before net changes in the fair value of financial instruments of $126 million, compared with $142 million a year in 2010.

Transpower chairman Mark Verbiest said transmission revenue was $675 million, a $22 million or 3% increase on the previous year.

However, transmission revenue was less than forecast due to a reduced regulated return set by the Commerce Commission and other one-offs, Mr Verbiest said.

Operating costs increased by $15 million or 6%, which Mr Verbiest described as a very satisfactory outcome.

Transpower general manager of corporate services Howard Cattermole said that rise included an increase in planned maintenance of $6 million.

Mr Cattermole said the Canterbury earthquakes had increased the cost of Tranpower's insurance by between 12% and 25%.

The New Zealand insurance market had reacted sharply to the earthquakes, he said, although in London, where Transpower had also sourced insurance, the price increases were more modest.

However, next year would be an interesting one in terms of the cost of Transpower's insurance, Mr Cattermole said, as it had scheduled a new-build at Haywoods, just out of Wellington, an earthquake-risk area.

Transpower chief executive Patrick Strange was frank about the cost of insurance rates, post-earthquakes.

“We haven't taken a total haircut...just about a number three.”

Mr Strange said the North Island grid upgrade, between Taupo and Auckland, was on the home straight and should be ready by September 2012.

All the necessary land had been acquired, he said, with no compulsory acquisitions needed, something he “wouldn't have dreamed of 18 months ago”.

However, due to the fall in land values that had occurred since Transpower bought close to 100 properties in 2006 and 2007, it had written off $49.7 million in the last year.

Mr Strange said he did not expect to take another loss on its property portfolio.

There was good demand for its properties and they were selling well, he said.

“Spring is going to be an important selling time.”

Transpower's overall capital programme, expected to be around $5 billion over the next 10 years, would significantly increase the capacity, performance and resilience of the grid, Mr Verbiest said.

"Equally important is the significant on-going investment in replacing and refurbishing older equipment."

Dividend payments to the Crown will recommence in the 2011/12 financial year, a year earlier than previously planned, he said.