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Prices And Profits In The Power Line Business

ELECTRICITY NETWORKS ASSOCIATION

Ministry of Economic Development figures showing falling prices and moderate profit levels in the electric lines business over the year to last August show just how unrealistic claims by various interest groups of massive price hikes are. The Electricity Networks Association has welcomed the MED data, and has highlighted three points made by the Ministry in its May Electricity (Information Disclosure) Newsletter:

▫ The Ministry examines movements in line charges for smaller consumers. Between August 1999 and August 2000, on average, line charges for a standardised small domestic consumer (6,000 kWh pa) declined by about 2.8% in real terms. Over the same period, the line charges for a medium commercial consumer (18,000 kWh pa) declined by about 3.7% in real terms.

▫ Last year a number of line companies revalued their assets. However, there were no substantial upward valuations. The overall ODV value declined by about $100 million, that is 2.4%.

▫ The profitability of line businesses can be judged by examining their Returns on Investment (ROIs) and comparing these with the Weighted Average Costs of Capital (WACCs). The average ROI for 1999/00 was 4.1%, and the median 5.1%. Both of these values were less than for the preceding year.

Networks Association chairman Warren Moyes says he is delighted to see the Ministry confirm what the industry has known for some time. “The electricity lines industry is largely community owned and has no intention of setting prices that produce excessive returns. This data exposes the bias in the nonsense put about by the Major Electricity Users Group earlier in the year about soaring line company profits. I see that the Ministry also notes that the quality of service provided by the lines industry, as measured through all 3 of its standard performance checks, has reached the highest level since the information disclosure regime was put in place. In other words consumers have been getting a better service at a reduced cost.”

Warren Moyes believes that the decade or so of radical reforms imposed on the lines industry since the old power board were abolished has too often reflected misunderstandings about basic trends of this type. “The early reforms were good ones, as reflected in the results we are achieving today. The Minister of Energy acted very responsibly last year when he ordered an impartial inquiry into the industry before carrying on earlier efforts to dump more bureaucracy and costs onto the lines industry through price control. This latest information shows clearly that the current light-handed approach to regulation is working to the benefit of consumers, even those with the least bargaining power.”

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