More on Transpower

I blogged yesterday on Labour’s silly claims about how the recent payment of a dividend from Transpower to the Government means that Kiwi households are paying hundreds of dollars too much in power bills.

A reader has e-mailed in with some facts that show how Labour’s claims are detached entirely from reality. The scary thing is that Parker must know what Labour is saying s not true, but they hope people will fall for it.

  1. Transpower’s “Maximum Allowable Revenue” (MAR) for its monopoly line services (ie almost all its activities) is regulated under Part 4 of the Commerce Act 1986 by the Commerce Commission.
  2. When the Commerce Commission sets Transpower’s MAR it does not take into consideration Transpower’s dividends or any interest it pays on debt. This is in line with standard regulatory practice as the dividends and interest payments are distributions and do not reflect the economic costs of production. Charges are related to efficient costs, including costs of capital (whether funded by debt or provided as equity).
  3. This means that Transpower’s dividends have no bearing whatsoever on its charges for its monopoly line services; ie they have no impact at all on the parts of the price of power relating to transmission lines.
  4. It is also the case that, given how the Commission sets Transpower’s MAR, Transpower’s charges do not depend materially on whether or not it finances its investments from retained earnings (ie foregone dividends) or by raising debt. 

It’s great to get feedback from people who know what they are talking about.

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