Regulator cuts future Horizon Energy earnings in out of court settlement

Friday 5th September 2014

The Commerce Commission will cut the amount Horizon Energy can earn in coming years as part of an out-of-court settlement with the lines company after it earned 3 percent more than its regulated pricing allows.

In the year ended March 31, 2012 the Whakatane-based electricity distributor exceeded its price path by $645,686, when it made an annual profit of $6.4 milion on $36.5 milllion in sales, the regulator said in a statement. Under the settlement, Horizon Energy will have to reduce its future earnings. In 2015, Horizon Energy’s earnings will be cut by at least $727,934 to compensate for the amount it over charged in the 2012 year.

“Horizon Energy’s breach was not intentional, and occurred as a result of variations between forecasts used to set prices and outcomes, and calculation errors” Commerce Commission deputy chair Sue Begg said. “The settlement was therefore designed to remove the amount Horizon Energy gained from exceeding its price path, rather than to penalise them.”

Under the regulation, where electricity distributors operate with an effective monopoly they must provide the commission with an annual self-assessment against the price path, which is the total amount it can charge for its regulated services. Last December the commission reached a similar agreement with Wellington Electricity which had breached its price path by 0.1 percent, or $116,800, in the year ended March 2012.

In the 2014 year Horizon reported an annual profit of $7.2 million on $104 million in sales. According to its 2014 annual report the company set aside a $380,000 provision in the year and recognising ongoing negotiations with the regulator towards a settlement, which it said could be as much as $827,000 based on the commission's calculations.

“Horizon Energy is disappointed that there continues to be no enforcement guidelines in place to provide certainty for electricity distribution businesses, and that it took over a year for the commission to initiate the matter with the company despite the company proactively raising the matter with the commission," Horizon chairman Rob Tait said in a separate statement. “The company is required to reduce its prices for distribution services next year, the benefit of this compensation may not necessarily make its way to consumers in the form of lower power bills as it is entirely up to the various energy retailers who operate on Horizon Energy’s network to pass on this compensation to their customers."

Tension between energy distributors and retailers came to a head earlier this year when the Electricity Authority said it was "unacceptable" for energy retailers to blame other parts of the sector for price hikes. Both Genesis Energy and Contact Energy announced price increases from April this year to offset increased costs from higher transmission and distribution fees, which lines and distribution companies say exceed the additional costs imposed on consumers.

In late February the commission ruled that state-owned national grid provider, Transpower, would be required to publicly disclose information about its pricing and network management. Under the new requirements Transpower must also disclose information about its investment, innovation and financial performance.

Meanwhile the electricity generator-retailers are facing increased regulatory uncertainty ahead of this month's general election. The Opposition Labour and Green parties want to create a single, state-owned power buyer and a restructured pricing model, to eliminate what they see as excessive power company profits and pass savings onto consumers through cheaper electricity prices.

Shares of Horizon were unchanged at $3.30, and have fallen 1.5 percent this year.

BusinessDesk.co.nz

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