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Transpower's transmission services have escaped regulatory control but the national grid operator warns that the settlement with the Commerce Commission only defers some price increases further out into the future.
The commission yesterday confirmed its acceptance of Transpower's administrative settlement offer, ratifying the plan outlined in the commission's preliminary paper released last October - but with some changes to the thresholds the state owned enterprise must adhere to when setting its annual revenue requirement.
In a statement, Transpower said it was a positive outcome that would not constrain it from developing and maintaining the national grid.
"As investment occurs, prices will rise to reflect the costs of investment. The effect of the settlement - coupled with the impact of unrelated project delays - has been to defer some of the price increases which will be felt progressively over the next few years as investments are approved and made."
But consumer prices will not change immediately, as its prices were reset for the 12 months from April 1 in accordance with settlement terms.
The future impact on consumer prices would be small, the company said, with transmission charges making up about 8 to 9 per cent of a typical household electricity bill. Any price increases in the future are still subject to scrutiny by the Commerce Commission and the Electricity Commission.
The Commerce Commission had intervened under the Commerce Act when the company breached its price path thresholds in 2003-04 and then announced in November 2005 its intention to increase prices by 19 per cent, and on average 13 per cent over the next five years.
Transpower agreed to suspend and rebate the 19.1 per cent price increase pending the outcome of the commission's investigation. Under the settlement the 19.1 per cent increase has been reduced to 10.2 per cent, while 2007-08 and 2008-09's estimated price increase reduces from 13 per cent to 8.1 and 6.3 per cent respectively.
Under the deal, Transpower's existing price path threshold will be replaced with three new ones: a revenue requirement, capital expenditure, and system operator services threshold, which reflects the terms of the contract between Transpower and the Electricity Commission.
Commerce commission chairwoman Paula Rebstock said the new thresholds would ensure that price changes were justified.
"As well as more appropriate pricing, Transpower now has strong incentives to invest and make further efficiency improvements by outperforming its thresholds."
Transpower's existing quality threshold will continue to apply.
