Dialogue: Council should back off and let Vector pay out

Economists have had little to say on the protracted dispute between the Auckland and Manukau City Councils (and Papakura), on one side, and the Auckland Energy Consumer Trust and Vector, on the other.

The battle will mercifully end on Thursday if the Auckland council follows Manukau and Papakura in accepting the judicial outcome of the dispute. The people of Auckland will then receive what is rightfully theirs - an equal share of the revenue that Vector (formerly the Auckland Electric Power Board and, for six years, Mercury Energy) has paid to its corporate owner, the consumer trust.

One reason for the silence of economists is that economic theory, which has much to say about private property rights, has very little to say about public property rights. That knowledge gap is one reason economists seem to have a bias towards privatisation or corporatisation of public assets. Such ownership structures establish exclusive property rights.

Even when considering intellectual property and knowledge, conventional economic analysis looks for efficient ways of excluding the public from accessing such "commodities" without paying a copyright fee, and excluding the public from the income such assets generate.

New inclusive concepts emerging in the software industry (such as copyleft) remain beyond the radical fringe of economics.

So how would this economist resolve the Vector dispute?

Vector is an electricity transmission company, a lines company. That makes it a natural monopoly, which means that, if unregulated, it can expect to make higher profits than normal companies.

All natural monopolies should be in some form of public ownership. The regulatory emphasis should be on ensuring such firms maximise profits within the context of their charters. When we own and profit from our power grid and charge high but not exorbitant prices for its use, the public benefits in two ways - energy is conserved, and most consumers gain more in dividends than they lose through higher prices.

Vector, and other publicly owned utilities, can play a significant role in reducing the inequalities that have built up in our society since 1985. There should be full, equal and frequent distributions of profits to the people of Auckland.

It is somewhat ironic that left-leaning politicians (such as Deputy Mayor Bruce Hucker) should play an active role in delaying and reducing the distribution of Vector profits to their constituents, many of whom are in debt and in poverty.

Herald columnist Brian Rudman noted on January 22 that "due to the vagaries of the legal system," the Auckland councils were designated as Vector's "capital" interest under the 1964 Perpetuities Act. These vagaries persist because there has not been enough academic attention given to public property issues to enable a revision of such antiquated laws.

Vector's assets will transfer to the councils in 2073. In the meantime, Vector shows up as an asset on the councils' books. The Auckland City Council seems determined to ensure that that book entry does not depreciate during its long wait to possess Vector.

Vector is not trying to cheat the councils. Rather, when converting in 1999 from a combined lines and retail company to a lines company only, some assets no longer required were sold. There is no reason the present owners should not benefit from that one-off sale of assets.

The full dividend should be paid out to the people of Auckland without any further obstruction.

There is one further question that needs to be resolved. On what exact basis should the consumer trust fund be distributed? The question has been settled for now; each Vector account holder will receive an equal portion of the fund.

In the absence of any public debate, there has been an assumption that the funds managed by the trust are the property of Vector's customers, as consumers.

Hence, it is argued by some that higher-consuming business customers should receive bigger dividends than domestic consumers.

This issue is too big to be readjudicated before the present distribution. What matters now is that we are not hidebound by precedent. The fact that businesses got a bigger share of the former Mercury Energy's profits in the past is no reason for their getting a bigger share now, or even a share at all in the future.

Most businesses are not conducted on the basis that their consumers are also their owners. Businesses who buy from the present Mercury don't expect a dividend from that state-owned enterprise.

In general, public ownership is determined by citizenship or residence, not by consumption patterns.

A model worth looking at is that adopted by Alaska. Its energy interests are owned, publicly, by the Alaska Permanent Fund Corporation. The corporation pays an equal dividend to every man, woman and child who qualifies as a resident of Alaska. Last year, the dividend was worth more than $NZ4000. That would be $20,000 to a family of five.

An annual per person distribution of Vector profits, even if only a tiny fraction of the Alaska dividend, would make a dent in the poverty that many Auckland families face. The reduction of poverty would be somewhat greater if the profits of Vector, Metrowater and the Ports of Auckland were all distributed to their owners, preferably on a per capita basis.

* Keith Rankin teaches economics at Unitec.

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