Transpower New Zealand Limited advises that the revenue forecast used to set the financial targets in its 2014/2015 Statement of Corporate Intent (SCI), is unlikely to be achieved.
This update follows the calculation of its new revenue path, from the determination by its regulator the Commerce Commission, for its second regulatory control period (RCP2), and subsequent decisions of the Commission. RCP2 runs for five years from 1 April 2015.
In comparison to its SCI, revenue is expected to reduce by $19m in Q4 of FY2015, and at least $75m per annum thereafter. These reductions will significantly reduce profit in FY2015 and in the following five year period.
The movement in annual revenue reflects a number of factors, including:
- a decision by the Commerce Commission to reduce the allowable rate of return from a 75th percentile to a 67th percentile cost of capital estimate
- a decision by the Commerce Commission to update the way it models the revenue required to meet costs
- movements in market cost of capital benchmark rates
- a final decision by the Commerce Commission on Transpower’s operating expenditure allowance.
An updated revenue forecast was published on the Transpower website in July 2014, based on Transpower’s revised proposal to the Commerce Commission for RCP2, and our estimate at the time of our allowable rate of return. Since that forecast result, revenues are projected to reduce by $8.9m in Q4 of FY2015, and at least $36m p.a. thereafter, due to the subsequent reductions outlined above.
Transpower advises that it is currently working through these new forecasts and identifying opportunities to help mitigate the impact on SCI metrics. Any material changes that eventuate will be disclosed.