Vector welcomes pricing proposal

Vector boss Simon Mackenzie says the company has been charging under the consumer price index for fear of breaching the rules. Photo / Greg Bowker

Vector has welcomed a Commerce Commission proposal which allows electricity distribution businesses to increase prices at the rate of inflation.

The draft decision is part of a process to reset default price and quality regulation, or price-quality paths, that apply to electricity distribution businesses under the Commerce Act.

Vector is the country's biggest lines business and its chief executive, Simon Mackenzie, said the paths released yesterday were a step in the right direction.

"There's a recognition that lines businesses have operated reasonably efficiently - in these volatile times there have to remain incentives to invest."

The company had kept charging throughout its network slightly under the consumer price index for the past five years for fear of breaching the rules, Mackenzie said.

There had been a commission-ordered rebalancing of Vector charges between Wellington and northern consumers in that period which saw prices rise in Auckland. The proposed paths will come into effect from April 1.

Work on critical long-term methods of charging by each of the 29 electricity distribution businesses is under way and there should be decisions next June.

The commission's network performance branch acting director, Brent Alderton, said the draft decisions proposed allowing businesses to increase prices by inflation while ensuring the current quality of supply to consumers would at least be maintained.

Mackenzie said the draft also set more realistic reliability standards.

"To be blunt, that hasn't been a feature of the previous regime, where even if you invested to improve service and reliability you weren't rewarded in any way."

More than half of the factors that knock out Vector lines are beyond its control, such as cars hitting poles or objects being thrown on lines, but it was being penalised because of a blunt regime that punished companies based on five-year reliability averages.

"If you breached that threshold the commission would typically open an investigation into you and you could end up with price control."

Vector will set its pricing over the next few months. As well as its own charges, it passes on Transpower transmission charges, rates and other levies.

Lines companies, unlike many energy retailers and generators, escaped criticism for excessive charging in the recent electricity review, although they have been subject to price control for most of this decade.

A minister-appointed panel found that since 1999, network or line charges had increased by 17 per cent for retail customers and had gone down 10 per cent for industrial customers and 5 per cent for commercial users.

NETWORK UPGRADE
* Lines companies argue they need certainty over charges to pay for network upgrades.
* Vector has $150 million in capital spending planned this year.
* Overall investment is forecast to grow a third to $300 million a year over the next 20 years.