Watchdog's method of regulation 'flawed'.

Vector cut its dividend this year because of the risk of tough price controls it says threaten investment.

Chairman Michael Stiassny said the divi-dend was cut to 52 per cent of free cash flows even though the target was 60 per cent.

At its annual meeting, he told shareholders it was prudent to do so because of "regulatory risk". Although the company had accepted there was a need for regulation, the Commerce Commission's regulatory regime needed to strike the right balance between ensuring prices were sufficient to encourage investment in infrastructure while ensuring consumers didn't pay more than they should.

The commission was impos-ing price cuts on Vector using a flawed methodology, he said.


The company, 75 per cent owned by the Auckland Energy Consumer Trust, spent about $17 million last year dealing with commission requirements.

Vector is challenging in court the latest commission price ruling along with seven other organisations, including airports.

"Our objection is that we are being asked to significantly reduce prices using a fundamentally flawed method of determining the allowable returns to our investors," said chief executive Simon Mackenzie.

The company had maintained prices below inflation for the past 10 years, he said.