Powerline owners fight regulation

By CHRIS DANIELS

The bell has rung on the latest round in the heavyweight prize fight between competition regulator the Commerce Commission and the electricity lines industry.

Submissions on the commission's "thresholds" scheme for regulating the monopoly companies closed on Friday, with the network firms saying they are about to fall under a harsh regime of profit control.

The commission is trying to reassure them that it is not proposing anything draconian and that only those behaving badly need worry.

It is going to use a series of "thresholds" relating to service quality, prices and profits to keep the lines companies, such as Vector and Powerco, from abusing their position.

"The thresholds are a screening mechanism to identify electricity lines businesses whose performance may warrant closer scrutiny. Thresholds are not an instrument of control," says the commission.

Top of the list of challenges will be the commission's plan for a profit threshold, which the lines companies say amounts to a cap on profits, leaving them able to make no more than their cost of capital.

Powerco, the second largest lines business in New Zealand, condemned the regulation plans, saying they were unlawful, as they amounted to universal price control.

Chief executive Steven Boulton said the proposals jeopardised the industry's ability to invest in and maintain lines infrastructure.

"There will be capital flight from the sector [a fact already backed up by market reaction to the proposed regime].

"There are no overseas investors remaining in the sector. Yet encouraging overseas investment remains fundamental to the growth of the national economy."

Powerco's submission says the thresholds will create disincentives to invest.

Its says there is no guarantee that the annual price reductions that lines firms are expected to make will even flow through to customers.

Powerco says the regime is coercive, extensive and intrusive and it accuses the commission of using pejorative language with its references to the companies "extracting excess profits".

Transpower, the state-owned owner and manager of the national grid, says the commission's plans need to be changed to take into account the need for significant investment in the medium term.

This includes upgrading the link between the North and South Islands, connecting new-generation schemes to the national grid and improving security of supply to downtown Auckland and north of the Auckland isthmus.

Vector, the largest lines company, would not release details of its submission, saying it would be prepared to discuss its ideas on regulation next week.