Threat to Vector stuns market

The Commerce Commission has been accused of jeopardising investment in much-needed infrastructure after it warned that it planned to impose price controls on Auckland lines company Vector.

Brook Asset Management, representing the views of many of New Zealand's largest investors, said yesterday the competition regulator had stepped outside its mandate and should be reined in by the Government.

"[The declaration] sends a clear signal that the regulatory environment is out of control," said Brook chairman Simon Botherway.

"It is not an environment where expansionary investment can take place."

Amid investor disbelief, some $270 million was wiped from Vector's sharemarket value yesterday after the competition watchdog declared it was delivering power cheaply to Auckland residential users at the expense of others, particularly in Wellington.

It is the third time the commission has said it would impose price controls on energy companies. Last year it moved to control Hawkes Bay's Unison and the national grid operator Transpower. Both are discussing a settlement with the commission.

Vector's shares closed last night down 27c, right on their $2.38 float price last year.

The move cast a pall over the stock market. Infrastructure stocks, which only a day before had rallied on a Government directive that the competition watchdog should be mindful that its actions do not discourage investment, were particularly hit by the news.

Commerce Commission chairwoman Paula Rebstock was unapologetic, saying the commission estimated Vector would earn $13 million to $75 million a year in excess revenue in the next two years - potentially more than Vector's $41 million net profit last year.

Rebstock said the decision was in the best interest of New Zealand and investment. The commission had given full regard to the new Government policy.

She noted it was also Government policy that consumers should not suffer from poor investments by regulated businesses; that services should be provided at an efficient price; and that regulated business should be held accountable for their investments.

"[Vector's prices] are extremely out of kilter for some customer classes and there is no systematic reason for why this is ... that is what happens when a business does not have the disciplines of competition or has not been regulated for very long."

The commission is now consulting on the price control plan.

Energy analyst Chris Stone, of McDouall Stuart, said if price controls were imposed the resulting loss in earnings could shave as much as $600 million off Vector's market capitalisation, now $2.6 billion.

Stone said yesterday's regulatory move was an embarrassment for the Government, and had major ramifications for business.

It signalled a regulatory position which was "more heavy handed than we've seen in 20 years".

Other investors were dismayed Vector had not warned the market earlier about the strength of the commission's resolve.

"[Surprise] is the understatement of the day," said Walker Capital Management portfolio manager Craig Brown.

"This is something that we should have been told about."

- Additional reporting NZPA