20 Aug 2013

Transpower charges to keep going up

7:08 am on 20 August 2013

Transpower says transmission charges will continue to rise for the next year or so to help repay investment in the grid.

Transpower completed the North Island Grid Upgrade Project and Pole 3 of the HVDC inter-island link during the financial year and says its third major project, the completion of a transmission ring through Auckland, is close to finishing.

Those projects helped contribute to its bumper net profit, which more than tripled to $263.7 million in the 12 months to June, up from $84.8 million last year.

Transpower chief executive Patrick Strange says transmission prices fell in inflation adjusted terms between 1992 and 2005 because there was little investment in the grid.

He says the company is probably in the next-to-last year of almost double digit annual increases.

"We're at the end of those now and after we complete that we will still, in real inflation adjusted terms, be below what we charged in 1992.

"But it was necessary to make that reinvestment in the grid. I mean dominated by the big projects, $2 billion has to be recovered over time. And you know our prices are regulated by the Commerce Commission. They say 'you can recover what's sufficient capital expenditure and what are efficient costs.'"

The company has $2.9 billion of debt, with a $200 million annual interest bill which it expects to grow further.

Debt is expected to peak at $3.5 billion by 2015 due to continued investment in the grid.

Transpower chief financial officer Howard Cattermole says he's comfortable with a 70% debt gearing ratio but dividend payments will fall in the future.