Greedy electricity line companies may affect OCR

Greedy electricity line companies may affect OCR

“Significant increases in power prices above general inflation could affect future Reserve Bank decisions on the Official Cash Rate” said Ralph Matthes, Executive Director of the Major Electricity Users’ Group.

“In the past the Reserve Bank has flagged expectations of high power prices as a factor in setting the OCRi. In those cases the push for higher prices was from generators and retailers. The risk now is the 28 electricity distribution companies and Transpower getting greedy and seeking an excessive cost of capital. MEUG has previously said if they are successful in forcing their inflated claims with the Commerce Commission for a higher cost of capital than we believe justified, consumers will pay up to half a billion dollars per annum more for powerii.

“Households and businesses can ill afford such a price shock.

“The electricity line companies need to get real about their cost of capital claims. If they force excessive returns it will hurt all consumers and the economy. The problem is that lines companies have both the incentive and almost unlimited resources to advance claims for excessive rates of returniiiMr Matthes concluded.

i Refer RBNZ OCR announcements 24th January, 6th March and 24th April 2008, and 11th March 2010, www.rbnz.govt.nz

ii Refer MEUG media release, Price increases of 354 to 531 million dollars per year for electricity if Commerce Commission gives in to electricity line companies, 26th September 2010,
http://www.meug.co.nz/includes/download.aspx?ID=112164 .

iii Line companies recover the legal, economic and technical expertise to advance these arguments from line charges paid by households and businesses. MEUG is also concerned that the only parties likely to seek a merits review by the High Court of the Commerce Commission decisions will be line companies using resources paid by consumers through line charges. In effect the line companies will cherry pick the decision resulting in an upside bias (ie higher cost to consumers) from the merits review process.

ENDS

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