Commerce Commission to cut Electricity Invercargill Ltd revenue

Thursday, 30 May 2019

Electricity Invercargill Limited chairman Tom Campbell.

The Invercargill City Council's most profitable company, Electricity Invercargill Limited, has been told in a draft decision that it must cut back its revenue by 10 per cent.

Electricity distribution networks are regulated by the Commerce Commission which dictates the returns they are allowed to make.

The commission on Wednesday released a draft decision on local electricity lines revenue and announced the total revenue 15 lines companies can earn for the year starting April 1, 2020, would reduce by $50m compared to the previous year.

Following the reduction in revenue in 2020, charges would increase in line with inflation through to 2025, the draft decision says.

* Holdco dividend to ICC in doubt

* ICC may face reduced dividends from best-performing company

* Invercargill council-controlled investment company Holdco reports $8.1m profit**

The commission's deputy chair Sue Begg said most consumers could expect an initial reduction in price as the commission had realigned revenue with costs.

EIL chairman Tom Campbell said lines charges for its consumers would go up less than they would have otherwise.

Campbell said the commission's announcement had been forecast and expected, and he confirmed it would have an impact on EIL from April next year.

It would likely reduce EIL's profits by the best part of $1m, he said.

The EIL group posted an operating surplus before tax of $9.5m in 2018 - up 6.7 percent on 2017.

Campbell said the company's regulated revenue cutback would have an impact on the size of the dividend it passed onto the council's holding company Holdco.

Each year Holdco determines what dividend it gives the city council depending on the results of the council's companies including EIL.

The council has budgeted for a dividend of $5.8m from Holdco this year, with Holdco having already paid an interim dividend of $3.8m.

However, it is undecided on whether to pay the remaining $2m dividend.

Holdco general manager Andrew Cameron said the reduced revenue of EIL was 'one of the pieces' it was considering.

Holdco was looking at all its investments to determine what was a long-term sustainable figure to give the council in dividends each year.

The forecasted figure was $4.8m going forward and the council had asked Holdco to consider whether it could make it adjustable by CPI.

'We will have a look at that in the meeting coming up but $4.8m is going to be roughly the number.'

Holdco's decision on whether to give the extra $2m dividend to the council this year would be made at the next Holdco meeting on June 6.

Last year Holdco gave the council a dividend of $5.3m, he said.