Network values get official tick

By CHRIS DANIELS energy writer

Power lines companies have been given a pat on the back by the Commerce Commission, quashing claims of asset overvaluation and system gold plating.

New Zealand's 27 monopoly lines companies are supposed to value their assets according to an official handbook.

The commission has for the first time audited them to see whether this is being done properly.

Craig Rice, a partner at Price Waterhouse Coopers, which helped put together the valuations for many of the lines companies, said the audit answered some critics of the companies.

He said it had been suggested that companies could manipulate values to gain a regulatory advantage.

"This shows that by and large they haven't been doing that. They've been well behaved."

Results published yesterday show five companies reduced their asset values by more than 3 per cent as a result of the audit.

Three others, including the state-owned national grid operator Transpower, increased valuations.

The other 20 companies had only minor changes to their valuations as a result of the audit.

Profits for lines companies, which are natural monopolies, are calculated by deciding what level of return can be earned on their asset base, which is calculated using the ODV or optimised deprival value method.

The method values electricity networks on replacement cost, rather than historic cost, which is frequently lower.

Total asset value of all the lines companies, excluding Transpower, has dropped by around $45 million.

Of this, $22 million, comes from the 13 per cent cut in the value of Southland carrier, The Power Company.

In a survey of lines companies recently published by PricewaterhouseCoopers, the Power Company was listed as having has the second highest return on investment at 24.7 per cent. The average return was 9 per cent.

In the audit, the value of Transpower's assets rose by around $13 million, or 0.7 per cent.

Lynne Taylor, director of corporate finance and investment banking at PricewaterhouseCoopers, said the lines companies had been expected to conduct valuations with little or no regulatory scrutiny.

The audit was the first for nearly six years.

Prices charged by lines companies are also coming down, says PricewaterhouseCoopers. The second largest lines company, Auckland's Vector, has recently reduced its charges by 10 per cent.

The average lines charge fell 2 per cent to 5c a kilowatt hour in the year to March last year, from 5.1c a kWh the year before.

But the average charge had jumped 11 per cent to 5c a kWh in the March 2000 year from 4.6c a kWh in the March 1999 year.

Asset valuations from two smaller lines companies, Buller Electricity and Gisborne-based Eastland Network, have not been approved by the commission.

In a separate but related exercise, the commission is also looking at whether ODV is the most appropriate method for the companies to use to value their assets.