TransAlta says lines firms need controls but retailers effective

By Richard Braddell

WELLINGTON - Electricity generator and retailer TransAlta New Zealand has called for regulation of lines company monopolies, but would vigorously oppose any attempt to regulate electricity retailing.

The company, which is under offer of full takeover by its Canadian parent, yesterday reported a net profit for the six months ended September 30 of $14.8 million, down 36 per cent on the $23.1 million in the same period of 1998, although it expected a net profit of at least $25 million for the nine months to December 31, its new balance date.

But in spite of the considerable restructuring forced on TransAlta by electricity reforms, the first-half earnings picture on a cashflow basis was somewhat better, with earnings before interest, tax, depreciation and amortisation up 6.4 per cent at $25.1 million.

The contrast with the bottom-line can be explained largely by the doubling in non-cash writedowns to $24 million on the previous period due to the amortisation in value of newly acquired customers.

Nevertheless, the company's commentary focused on the difficulties facing the industry due to the split between lines and retailing.

Its chairman, Dr Roderick Deane, said a major issue needed to be addressed: the creation of "market-like forces" that would force the 32 monopoly lines businesses and Transpower to lower their prices to customers and to improve their service.

"Each line company has different and sometime onerous terms and conditions and pricing structures which has limited the number of energy retailers who are active in any given area," Dr Deane said.

"The greatest customer benefits will be achieved by simplifying, standardising and balancing these agreements and reducing line charges which make up around 50 per cent of the average electricity bill."

In its commentary, TransAlta said the Government's realisation that pressure was needed to get lines companies to perform had resulted in the now-stalled legislation to strengthen their regulation.

TransAlta also believed that wholesale prices had not dropped as much as the 30 per cent overcapacity in generation implied they should. The solution was to privatise the three baby ECNZs, in the expectation of greater efficiency in wholesale pricing.

Nevertheless, TransAlta was opposed to regulation in the retail energy sector, arguing that switching between companies was easy, free and, in most cases, could be done with a phone call.

TransAlta said: "If there were moves to regulate retailers, we would be vigorous in our opposition."