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Vector ordered to drop gas prices

JASON KRUPP
Last updated 11:08 28/02/2013

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Vector says its "unsurprised" by the Commerce Commissions decision to slash its gas distribution and transmission prices, and an appeal is already in the works.

The Auckland electricity and gas distribution monopoly was ordered by the competition regulator to reduce gas distribution prices by 18 per cent, and gas transmission prices by 29.5 per cent.

That equates to an average reduction of $5.30 on customer bills every month.

The firm's shares opened 1.1 per cent lower at $2.84.

Chief executive Simon Mackenzie said Vector had been compliant with the Commerce Commission's price-path methodology since 2007, and the cuts were proof the investment incentives put in place under the previous pricing regime delivered end-market efficiencies.

"The paradox is that if you're seeing price increases, then one could argue you're operating on a less efficient basis," he said.

However, the firm is still challenging in court the new pricing methodology which the Commerce Commission used to calculate the latest adjustments as well as earlier electricity distribution price changes.

Under those changes Vector and Horizon Energy were ordered to cut their electricity distribution prices, while 13 power distributors were order to lift their charges.

Vector argues that while the regulator has adjusted its capital-return calculation to reflect a lower risk-free rate since the global financial crisis, it has failed to account for equity investors demanding a higher return on their capital.

Mackenzie labelled the methodology "not symmetrical" and out of step with other pricing regimes around world, with British regulators having recently taken investor demand for higher returns into consideration when determining its price path.

The merits-based challenge, which is before the High Court, is expected to be completed before the gas prices changes coming into effect in the market in October.

Under the price adjustments announced today, Maui Development was ordered to reduce its transmission costs by 1.2 per cent.

Meanwhile GasNet and Powerco were told to increase their gas distribution prices by 2 per cent and 4 per cent respectively. For Powerco customers, that translates to a 30-cent increase per month and no change for GasNet customers.

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- BusinessDay.co.nz

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