Tens of thousands of people in Waikato and the upper North Island look set to have their gas bills slashed after the Commerce Commission accused Vector of overcharging.
In pricing proposals for gas pipeline operators, the commission said Vector's charges for its distribution business should drop by 16 per cent, with its transmission business facing a 25 per cent cut.
This would save more than 140,000 residential customers, including many in Waikato, about $4.60 a month, or $55 a year on their gas bills, according to the commission's figures.
The proposals relate only to the cost of transporting gas, not the gas itself.
Vector's customers are mostly in Waikato, Auckland, Northland and Bay of Plenty.
It has a few additional customers in Kapiti, north of Wellington.
Last week Vector's management attacked the commission, saying it was taking legal action against it to protect shareholder value.
Commerce Commission deputy chairman Sue Begg said it was the first time many of the businesses had been subject to this type of regulation, which was designed to bring charges into line with the cost of providing the services.
"You could conclude from that, that in the past they [Vector] have been charging too much."
The forward-looking proposals did not scrutinise investment plans, and Vector had proposed $50 million in capital investment which would fall outside the commission's allowance.
Vector could apply to have customised pricing if it wished, Ms Begg said, although even if it were allowed the increased investment, the commission's formula still see prices cut sharply. "Even on their own numbers, we're looking at significant overpricing."
The news sent shares in Vector down 5.2 per cent to $2.75, the lowest level since the end of August.
Its chief executive Simon Mackenzie said the commission's gas pipeline proposals, like its recently released electricity proposals, were based on "flawed methodologies" for asset valuations and cost of capital assumptions, and an "incomplete regulatory package".
"The commission is relying on asset valuations which are nearly 10 years old, having rejected more up-to-date valuations," he said.
Mackenzie said the proposed cuts to its pricing were "frustrating" because it had already cut the price of using its gas distribution pipeline by 20 per cent "in real terms" since 2005.
"We also find it difficult to reconcile the commission's position against the minister of energy's view of the criticality of the gas infrastructure in New Zealand and the need to ensure that those assets remain in excellent condition."
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