apr-11.pdf (2.07 MB) - Crown Ownership Monitoring Unit

OperationsIn 2010/11, Transpower has continued its major grid investment programme,spending $733 million across multiple projects. The overall capitalprogramme is currently forecast to be around $5 billion over 10 years, withinvestments peaking in 2011/12 at around $870 million. These investmentswill significantly increase the capacity, performance and resilience of the grid.The increase in capital investment will see a commensurate increase in therevenue Transpower can recover from its customers, as determined by theCommerce Commission (the Commission).There have been significant regulatory changes impacting Transpower. Underthe Electricity Industry Act 2010, since 1 November 2010, Transpower wasgiven additional responsibilities as the System Operator and placed regulatoryoversight of all transmission operating and capital expenditure under a singleregulatory agency, being the Commission. Additionally, under the new regime,the Commission has developed a new input methodology that determines therate of return that Transpower may earn on its investment in the National Grid.Transpower considers that the proposed rate of return set by the Commission ismaterially below its cost of capital, and has therefore applied to the High Courtseeking a “Merits Review” and a Judicial Review of the Commission’s finaldecision.Financial performanceTranspower achieved NPAT (excluding fair value movements) of $126 millionfor 2010/11. This compares with $142 million for 2009/10. The decreasein profit is a result of higher operating expenses (particularly maintenance),lower than forecast transmission revenue owing to a reduction in the regulatedreturn set by the Commission and the deferral of the planned commissioningof the new Pole 3 and recognition of a further impairment charge on properties($19.7 million) purchased by Transpower for the North Island Grid Upgradeproject.Following a period of large investments, it is expected that Transpower willdeliver a higher cash return to the Crown.Performance against planTranspower recorded NPAT (excluding fair value movements) of $126 million,against a plan of $152 million. Though the underlying operating performancewas sound, the result was impacted by the adverse one-off impacts mentionedabove in the financial performance section.DividendsIn a decision supported by shareholders, Transpower had suspended itsdividend payments since the 2005/06 financial year so that profits could bereinvested in the grid. Following a review of its capital structure and dividendpolicy in 2010/11, the Transpower Board has decided to recommencedividend payments in 2011/12, a year earlier than previously anticipated.This is likely to result in a dividend payment of $315 million in 2011/12 andcumulative dividend payments of $695 million over the next three years.Major investmentsTranspower has a major capitalinvestment programme underway.Work on the three largest projectscontinues, being the North IslandGrid Upgrade project (a totalproject value of $824 million), theHigh Voltage Direct Current Pole3 project to upgrade the inter-islandcable (a $672 million project) andthe North Auckland and NorthlandProject (a $473 million project).Non-financial performanceTranspower achieved the majorityof its non-financial performancetargets but did not achieve targetsaround the number of fatalitiesor injuries causing permanentdisability (1 against a target of0), and the number of medicaltreatment injuries (26 againsta target of 20). Transpowercontinues to focus on improving itssafety performance.Corporate social responsibilityTranspower has establisheda CommunityCare Fund thatprovides support and funding tocommunities that are impactedby Transpower’s operations.In 2010/11, the Fund madegrants totalling $1 million to52 community-based projectsnationwide.Transpower also made a special$500,000 donation for Canterburyearthquake relief.page | 101