Commission intends to take control of Vector

The Commerce Commission intends to take control of electricity company Vector for over-charging, it was announced today.

The Commission has found the company was charging too much to industrial and commercial customers and said it was abusing its monopoly power.

It also found Vector was under-charging some residential customers, particularly Auckland consumers who are beneficiaries of Auckland Energy Consumer Trust, Vector's principal shareholder.

Vector is in talks with the Commission about an administrative settlement which would avoid the Commission taking control. This would probably involve the Commission and the company agreeing prices and quality control for five years.

Commerce Commission chairwoman Paula Rebstock said this afternoon that Vector was aware of the issues and had had "ample time" to fix them. Instead, the situation had deteriorated.

She said: "These are very serious issues. Vector is only able to overcharge some customers and undercharge others by abusing its monopoly power."

Ms Rebstock added: "Vector is focussing on the short term interests of particular classes of customers who are also beneficiaries of its major shareholder, the Auckland Electricity Consumers Trust. Such customers receive a direct dividend and an additional implicit dividend by being undercharged themselves.

"The Commission's view at this time is that a declaration of control would be in the long-term interest of consumers.

"Overcharging and undercharging are both inefficient – that is, they are harmful to the New Zealand economy."

Vector Chief Executive Mark Franklin rejected the allegations and said future investment may now be in jeopardy.

"Investment decisions Vector had put on the board agenda are now in serious jeopardy because of the uncertainty created by the Commission's action," Mr Franklin said in a statement.

He said the price breaches related to the 2003-04 year and had been rectified and there had been no further price breaches since. It had also been working towards rectifying the differentials for the past two years and was on track to achieve that by 2009, the Commission's target date.

Shares in Vector closed down 10.2 percent to a historic low of $2.38. It had reached as high as $3.37 over the past 12 months.

Commission's claims:

* Vector is overcharging some customers and undercharging others. The company is making different rates of return from its 21 different customer classes and these differences can not be justified. For example, during the 2006/2007 year, Vector will earn a 54.4 per cent rate of return on investment from one group of Northern business customers, while it earns only a 4.6 per cent rate of return from Auckland residential customers.

* Vector is earning excess revenues. The Commission's preliminary estimate is that, during the next two years, Vector will earn between $13 million and $75 million in excess revenue per annum. To bring its returns to a normal level, the Commission estimates Vector would need to reduce its charges between 2 per cent and 11 per cent for each of the next two years. (Vector's distribution charges comprise around 20 to 40 per cent of the customer's power bill.)

- NZHERALD STAFF, NZPA