NZ power companies within limit: PWC report

New Zealand's electricity lines companies have achieved considerable efficiency gains without making monopoly profits, says a PricewaterhouseCoopers report.

The timely release of the report - based on information the companies disclosed for the March 2002 year, as required under the Electricity Regulations 1999 - comes as the companies face possible price regulation under a new regulatory regime to be operated by the Commerce Commission from this April.

Electricity Networks Association chief executive Alan Jenkins told EnergyReview.Net that the report contained no surprises - "the numbers have been known for a while and is very much what the companies have been telling the commission - that they are solving a problem that is not there."

"I think, however, that the timing of the release of the report is excellent," Jenkins added.

The report's findings gave the lie to what various interest groups had been telling the commission, that lines companies had been making excessive profits. The report also showed that the present light-handed regulatory approach, which included full information disclosure, was working well enough and did not need changing.

The commission last week announced draft proposals, meaning lines companies face possible price control if they fail to meet line charge reductions of between 1-5% per annum for the next five years, depending on whether the commission ranks them as more efficient, efficient or inefficient.

The PricewaterhouseCoopers report says the median electricity line charge had reduced by 12.6% in real terms from 4.9c to 4.3c per kilowatt hour over the last six years.

The companies had become more efficient with the combined median direct and indirect costs falling by 37% in real terms since 1995, with the biggest reductions occurring after 1997.

The cost per electricity connection point had fallen from about $NZ240 to $NZ150 in real terms. This had resulted from better operating practices and efficiencies, partly from technological change, out-sourcing and improved information about the condition of network assets.

"These trends demonstrate that on average the industry has achieved considerable gains in efficiency without generating excessive profits through excessive prices under the light-handed disclosure regime," the report says.

"In addition, on average the industry has passed benefits on to consumers through improved quality and lower prices."

Meanwhile, State-owned power company Meridian Energy is trying to buy the 10-station Southern Hydro in Victoria, which is valued at more than $NZ430 million and is being sold by United States energy giant Alliant. The peaking stations have a combined generating capacity of 500MW.

Other possible bidders are believed to include fellow Kiwi power player Contact Energy, which once owned 27.7% of Southern Hydro but sold that in 1999 because of a conflict of interest with its majority shareholder, Edison Mission Energy, which already owned and operated the 1000MW Loy Yang coal-fired station in Victoria,.

Meridian already owns the generation equipment associated with five small hydro stations in Australia - four in New South Wales and one in Victoria. Company spokesman Alan Seay said now that Meridian had that "first foothold" and had acclimatised itself to the Australian environment, it was looking to expand its presence across the Tasman.

However, Alliant's Australian sell-down raises questions about its continued involvement in New Zealand, where it owns 19.1% of electricity generator and retailer TrustPower which is performing well. TrustPower made an after-tax profit of $NZ39 million for the nine months to December, the month it also bought the 32MW Cobb hydro station, near Nelson, from NGC Holdings for $NZ92.5 million.

Contact, which last year invested $NZ31.8 million in the 300MW peaking plant, Valley Power, in Victoria, recently failed in an attempt to buy the coal-fired Flinders Power Station in South Australia.

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