Watchdog KOs Orion price hike
Electricity lines company Orion may take on more debt than planned after its proposed price hikes were knocked back.
Yesterday the Commerce Commission released its final decision on the company's request to raise prices next year by 15 per cent above inflation.
The commission cut that to 8.4 per cent, which will mean an extra $4.80 a month on the electricity bill of the average Christchurch household. Had the 15 per cent been allowed, that figure would have been $8.50 more.
All up, the ruling has slashed Orion's proposed revenue increase by $116 million.
That's $50m less over five years than Orion requested, and the Commission has refused to allow Orion to recover another $66m in the following five years.
Less revenue for the 89 per cent Christchurch City Council-owned Orion presents a choice between taking on more debt to continue the planned network upgrade or cutting back and slowing down..
Orion chairman Craig Boyce said its plans had included raising debt from about $50 million to $200m but Orion might have to borrow more than that to keep upgrading the network. Fortunately, the company had a low level of debt now.
Orion would not drop any parts of its upgrade plan yet and would study the commission's 245-page ruling before deciding.
The commission said Orion wanted to do too much too soon. Orion's proposals included restoring the network to a higher reliability and quality level than before the earthquakes and to give it more resilience to high-impact but low-probability events like earthquakes.
"It's still a reliable network despite all this," Commission deputy chair Sue Begg said.
Boyce acknowledged that the commission was only prepared to allow Orion to raise prices to restore reliability over five years to the same level as before the earthquakes but said the company had always looked to the future.
"We tend to take a long-term view on the network and we want to build in resilience as we extend it to make sure that if there is another event that it is taken care of for the Christchurch community," Boyce said.
He said the company was now not sure if it would continue to improve resilience.
It was "very unlikely" that Orion would challenge the decision in the High Court with a "merit review", he said.
It was too early to say what the impact would be on its profits and dividends to the council.
COMMERCE COMMISSION DECISION
Applies for five years from April 2014
Orion may raise its charges by inflation plus 8.4% from April next year for a year.
Orion may raise its charges by inflation plus 1% for the next four years.
Orion decides the prices it charges different groups.
Commission said "no" to Orion recovering $43m of "lost" revenue after demand fell following the quakes.
Commission said "yes" to Orion recovering expenditure of $34.8m to get the network fixed after the quakes.