Orion plans price cuts

By FIONA ROTHERHAM

Christchurch-based electricity lines company Orion New Zealand is cutting prices by an average 3.5 per cent, or $5 million, from July.

It is unclear whether all consumers will benefit.

Orion's charges make up about 50 per cent of the retail power account.

Retail company TransAlta has already said it will pass on any reductions in line company charges. It bought the retail assets of the former Southpower in 1998 for $171 million.

Though TransAlta commended the reduction, it said 3.5 per cent was only a small step and it hoped further cuts would be forthcoming. It said some customers might not notice any change in their bills and others might not receive any cut because of the way tariffs were constructed.

Orion said the reduction came off the variable, rather than fixed, component of the bill and would have a varying impact.

The price cut precedes the reporting back of the Government electricity inquiry to Energy Minister Pete Hodgson on June 12.

The inquiry is examining the role of monopoly line businesses and their impact on electricity prices.

The two moves are unconnected, according to Orion's general manager commercial, Roger Sutton. "When we make gains we think it is fair to share them with customers."

ABN Amro energy analyst James Miller said lines companies had a cap of about 10 per cent on the return on investment they were supposed to make each year.

"It's possible they were going through their budgets for next year and saw they were going to go through the cap and did the appropriate thing by reducing charges."

The Electricity Networks Association said there was no formal cap. On average, lines companies were making a return on investment of around 7 per cent, reflecting it was "safe" money.

Orion recently sold its North Island gas network to UnitedNetworks for $550 million and its 5 per cent share in the Southdown co-generation plant for $8.5 million.

All but three of the lines companies, including Orion, last year agreed to a price freeze in a tradeoff to defeat former minister Max Bradford's bill for a CPI-X formula to control prices. The freeze ends on July 1.

Submissions to the Government inquiry have criticised monopoly lines company charges as often being two or three times what is justified by their network valuation.

Few consumers are better off, although large companies have benefited from lower wholesale electricity prices under the mandated split of lines and retail businesses.

The Major Electricity Users Association said efficiency gains made so far had gone back to shareholders of the electricity companies and consumers had seen scant return.

"In this case it's the 3.5 per cent Orion feels is enough to keep its customers off its back. We want all the benefits of reform," said association executive director Ralph Matthes.