also resulted in the Transpower increases for The
Lines Company this year being among the lowest
in New Zealand. This in turn is keeping costs down
for our customers.
TLC however also recognises that the cost of
maintaining the network must remain at an
affordable level. To ensure this TLC is engaging
with its customers through load pricing and
consultation on outage and service levels to
clearly establish the network capacity and the
service quality that its customers are willing to pay
for. There is no incentive for TLC to invest in its
network beyond this point.
The network business is regulated by the
Commerce Commission. Price thresholds are reset
on a five yearly basis to ensure that TLC does
not earn more than the regulated rate of return
from the network. Savings from lowering capital
requirements or operational efficiencies are passed
on to customers. In the long run TLC will therefore
earn its cost of capital, but no more, from the
regulated network business.
The Commerce Commission provides clear rules
around the value of our network assets. Last year
saw the completion of a standard valuation exercise
across regulated lines companies. As a result of that
revaluation the regulatory value of our network
increased by $27 million. Future increases due to
revaluations will be limited to CPI, with the value
of the increase each year being taken into account
when looking at our regulated revenue.
The Commerce Commission also has clear rules
on the allocation of costs between business units
to ensure that the network is neither subsidising
nor subsidised by other business units. We are
audited against these rules. Returns earned by
other business units do not therefore affect lines
prices, except to the extent that TLC’s overheads
are spread across a wider base.
The Board adopted a strategy of diversification in
2006. Since then TLC has invested in developing
a run of river hydro generation portfolio of 3
schemes, and has invested in an oil refurbishment
business, and a local contracting business
concentrating on industrial customers. The Board
believes that, if TLC is to earn more than its cost
of capital in the long run, it needs to continue to
diversify into businesses other than the regulated
network business.
A number of other opportunities have been
investigated over this time, but not proceeded
with as the Board considered that they would
not provide a sufficient increase in value for TLC.
However, in order to guarantee success, such
diversification should leverage off the proficiencies
TLC has developed, and TLC needs to extract as
much value as it can from its existing businesses.
Ultimately, the Board and Management of TLC are
committed to ensuring that:
there is a continued focus on the Health and
•
Safety of our staff
outages do not exceed a level considered
•
satisfactory by customers
the ratio of satisfied network customers
•
continues to increase (This involves increasing
levels of customer service and providing cost/
benefit trade-offs for customers.)
our cost of capital is met by both controlling
•
costs, including new network investments and
setting realistic prices based on the necessary
level of investment in the network
the requirements of the Electricity, Electricity
•
Industry and Commerce Acts are met
investments are made on a prudent basis
•
we remain safely within our debt covenants.
•
Network
This year saw the launch of the Safety Management
System (SMS) for public safety programme across
all network companies. We have embraced the
opportunity to review all our systems and processes
to ensure that the risk to public health and property
is as low as possible. The Lines Company is one of
the first organisations to be certified and, alongside
the internal administration of the programme,
we will be presenting a school public safety
programme. All schools in our region will be visited
over the next two years.
The SMS programme has been one of the drivers
in the building of a new team in the Asset
Management Group. This team is now tasked with
building an asset management strategy for the
future including the IT required for future work
planning and projects. In this year’s production
of the Asset Management Plan, which is written
primarily to comply with regulation, they added a
special section to meet customer requests
keeping you connected
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