Backdown eases investment fears

Vector should now be able to make needed infrastructure investment. Picture / Glenn Jeffrey

The Commerce Commission's backdown on its plan to take control of Vector's prices should ease fears about this country as an investment destination, investors said yesterday.

They also said the commission's ditching of an earlier plan to investigate the Auckland power lines company's overall rates of return should give Vector the required confidence to invest.

Tyndall Investment Management fund manager James Lindsay said: "We fully support the commission's change in direction and any move to allow Vector to achieve reasonable returns to sustain the significant network investment required over the coming decade."

Last week, Vector agreed to a formal audit of a staged plan to charge all customers equally by 2009. The deal removes subsidies to Auckland customers that came at the expense of those in Wellington.

But the agreement makes no reference to the commission's earlier claims that Vector was generating an excessive return.

In August, the watchdog said Vector would need to reduce charges by 2 per cent and 11 per cent over the next two years to bring its returns to a normal level.

Vector responded by putting on hold $630 million of spending - a move that was matched by other large infrastructure investors. Vector said it could not guarantee the security of Auckland's power supply because the commission was not letting it make enough profit on its investments.

Investors said the commission was acting unreasonably, especially as its threat came after only minor regulatory breaches. These included the recovery of $76,000 more in transmission charges than forecast and breaches of service quality commitments after extreme weather.

Vector said last week it would invest to deliver a secure, safe and reliable service and protect the sustainability of the business. But its halt on long-life investments would remain in place at least until a recently announced review of the Commerce Act was completed.

Lindsay said aggressive moves by the commission raised the risk of investing within the infrastructure sector and had done little to improve this country's prospects as an investment destination.

Walker Capital Management's Craig Brown said: "The decision implies the present level of return is OK. But it is unwise to count your chickens before they hatch."

Vector's shares rose 1c to $2.53.