7.5% electricity rise announced

Press, 29 January 1988, Page 4

7.5% electricity rise announced

By

PETER LUKE,

political reporter The Government has increased wholesale electricity prices by an average of 7.5 per cent, overruling a lower rise recommended by Electricorp. The corporation was set to announce today an average wholesale price rise of 6.7 per cent. But the Minister of StateOwned Enterprises, Mr Prebble, said this increase was effectively a real cut in electricity price, and imposed the higher figure.

The new price, a rise of 8.2 per cent for supply authorities, will begin on May 1 and run for 11 months. Price determinations remain the responsibility of the Government until Electricorp’s assets, which the corporation at present manages under licence, have been valued and transferred. Mr Prebble said the price increase was close to the projected rate of inflation for the next six months.

“The Government believes that until the asset valuation has been determined a neutral price increase is more appropriate,” he said. Mr Prebble also noted that Treasury had recommended an average electricity rise of 10.4 per cent over the 11-month period. The chairman of Electricorp, Mr John Fernyhough, said the greater increase, which would earn the corporation an extra $ll million, was

understandable but commercially incorrect. A commercial or competitive approach would be to respond to surplus power capacity by dropping prices. This would encourage increased utilisation of resources or increased sales. Electricorp had even considered a lower increase than the 6.7 per cent recommended, but had ruled this out because it might have been perceived as trying to influence the asset sale

figure by running down the business’s value. Contracts with supply authorities would be initially for a five-month period — from May to September. This trial period would test the effectiveness of the new charging structure — also announced yesterday. By then the asset value ought to be finalised enabling the corporation to know what capital base had to be serviced by its charges. For its budgeting on the 6.7 per cent recom-

mendation, Electricorp had used a hypothetical asset value of $4.4 billion. Electricorp’s chief executive, Dr Rod Deane, said the Government’s figure of 7.5 per cent approximated to the expected consumer price index rise. Electricorp, however, believed it was normal to use the producer price index — about 6.7 per cent — given the importance of industrial The last-minute confusion over yesterday’s an-

nouncement reflected the sort of difficulties caused by the prolonged asset valuation exercise, said Mr Fernyhough. But he hoped the Government’s move was unrelated to the solution it would find to the asset dispute. Mr Prebble had only been given Electricorp’s recommendation on Wednesday and urgency arose from the need to give three clear months to negotiate price and structure contracts with the 61 supply authorities.