Electricity networks reject overcharging claim

By BRIAN FALLOW

The Electricity Networks Association has rejected claims that revaluations of line companies' assets were a pretext for price gouging.

Association chief executive Alan Jenkins yesterday responded to a report by economists Simon Terry and Geoff Bertram.

The pair concluded that electricity line companies had overcharged their customers by $1 billion over the past five years.

Efficiency gains since the companies were corporatised in 1993 were not passed on as lower prices, but instead fattened profits, they said.

That effect was masked by revaluations of the networks which kept the companies' reported rates of return within the bounds the Government had indicated were acceptable.

Mr Jenkins, however, rejects as "an attempt to rewrite history" this portrayal of the revaluations as a switch from honest and accurate historic cost values to inflated and internationally disreputable optimised deprival values (ODV).

"The old power board ownership structure didn't allow profits, so there was no incentive to value things properly," he said.

"They would just build something and forget it.

"The values in the books were not real historic cost, just parts of it. They didn't take into account things like power poles paid for by councils."

The increase in profitability reflected the policy change which required the former power boards and municipal electricity departments to be run as commercial enterprises - making profits, paying taxes and with their assets valued in realistic and comparable ways.

It was also unfair, Mr Jenkins said, to dismiss ODV as an off-the-wall local innovation. Australian regulators used a similar method called DORC (depreciated optimised replacement cost).

Mr Jenkins said the fact that lines business had generally changed hands in the recent shake-up of the industry for a price higher than ODV was evidence that it was a conservative method of valuing such assets.

ODV was not a mechanism for allowing companies to make a return on investments they have yet to undertake.

"All it did was crank those assets up to where historic cost, if it had been real, would have put them," he said.

Meanwhile, Economic Development Minister Jim Anderton said it was unacceptable for electricity lines companies to overcharge consumers and he would get officials to look into the matter urgently.

John van Brink, pricing manager of the largest lines company, UnitedNeworks, said the company was working on a new pricing regime to take effect from March 31 next year, when its current freeze on line charges comes off.

Return on investment would be a significant component of that, but the valuations would be calculated on a different basis than ODV and would be sometimes higher, sometimes lower.