The Commerce Commission has concluded that state-owned enterprise Transpower NZ Ltd could have avoided spending $17.7 million of a $70 million overspend on the North Island grid upgrade project.
The commission released a draft decision yesterday on Transpower’s application seeking to recover its overspend, which added $70 million to the original $824 million the Electricity Commission approved in 2007.
Transpower owns & operates the national electricity grid, and the project was part of a suite of initiatives aimed at improving security of electricity supply to Auckland & Northland. The commission is reviewing the project because Transpower spent more than originally approved.
Commission deputy chairwoman Sue Begg said the review found the $70 million overspend was largely due to under-forecasting at the beginning of the project: “The grid upgrade was the largest & most complex transmission line project that Transpower had undertaken for many years. Accurately forecasting the costs of major infrastructure projects is challenging, so spending in excess of a forecast is not necessarily inefficient.
“The focus of this review was to identify costs that Transpower could have foreseen & avoided. We found that $17.7 million of the $70 million overspend was avoidable and this all relates to construction costs for the 400 kV line. Specifically, this was a result of construction work being undertaken out of sequence.
“Our assessment is in line with Transpower’s own estimates of the costs that arose from later than ideal planning, which it proposed to not recover. Our draft decision will allow Transpower to recover an additional $52.3 million from consumers, which amounts to roughly 89c/year for the average consumer.
“Preventing Transpower from recovering the avoidable costs from consumers will encourage it to deliver investments more efficiently, while still providing incentives for new investments that are appropriate in the future.”
The commission is seeking feedback on its draft decision & Transpower’s proposal by Thursday 21 May.
Attribution: Commission release.