Brian Rudman: Consumers to pay price of Vector's duff deal of the century

Four years ago, the trustees of Vector, the Auckland-based electricity lines company, were wetting themselves with excitement about their cleverness in taking over Wellington-centred rival UnitedNetworks.

Now the 292,000 customers in Vector's home territory of Auckland City and South Auckland are paying the price. As a direct consequence of the deal, the average Auckland household power bill will leap by $165 a year.

That figure comes direct from the chairman of the Auckland Energy Consumer Trust, Warren Kyd.

We part-owners of Vector should be very angry.

In 2002, in reply to my criticism of Vector's Think Big policy, the then trust chairwoman, Karen Sherry, said beneficiaries could decide for themselves whether the sale, and plans to partially privatise the company to pay for it, was "just a plain good business deal to their advantage".

A year later, in her official annual review, Ms Sherry trumpeted that "the purchase is a triumph for the trust" and "there is no doubt the beneficiaries of the trust will gain a great deal from this transaction over time".

She added that any increases in charges to residential consumers would be linked to the consumer price index, starting April Fools Day, 2002. Wisely, the trust added several exclusion clauses to that pledge, including a barn door of an escape hatch called "reasonable cause".

A year later Mr Kyd had assumed the chair and was continuing the hymns of praise for the takeover and how it was "delivering excellent results to its shareholders and customers alike".

But all along they were playing chicken with the Commerce Commission. Now the commission has run them down and we, the customers of the original "Small Vector", are being told to pay to clean up the mess.

The commission's concern is that Vector, as a monopoly, is charging Aucklanders less for its services than its former UnitedNetworks customers in Wellington and North Auckland. In the regulated world, this is a big no no.

"Small Vector" could charge low prices because it had a concentrated, established urban customer base. In September 2002, then Vector chief executive Patrick Strange bragged about having "the lowest line charges of the urban lines companies". Earlier that year he'd cut charges to Auckland customers by 10 per cent. But having taken over the more costly-to-run United, Vector is now required by the Commerce Commission to even out the charges. The result is, Auckland is being forced to subsidise the users of Wellington and North Auckland.

In yesterday's Herald, Mr Kyd was playing the white knight, donning armour to do battle with the unfair dragon from Wellington, Commerce Commission chairwoman Paula Rebstock. He talked of his duty to protect the interests of 300,000 Aucklanders. What a shame his predecessors hadn't thought of that four years ago.

Mr Kyd is not disputing Auckland power bills have to go up as a result of the duff deal of the century. He just wants the Commerce Commission to agree to the trust's "phased approach" over four years. Apparently we're already halfway through this process - though I don't recall our trustees shouting this from the rooftops.

Back in 2002, independent financial analyst Roger Armstrong was wide-eyed at the price Vector was willing to pay in light of the Commerce Commission's interest in controlling monopolies. He wrote that the purchase price paid was "tantamount to giving the fingers at the regulators", and said "to have paid such a full price with the risk of regulation hanging over the industry probably goes beyond brave".

With my lines charges rocketing and my shares - yes, it's time to admit there's one born every minute - 12c below the $2.38 flotation, the trustees should be falling on their swords, not waving them at false enemies.

* Mayor Dick Hubbard and the other Auckland City Council politicians seem determined to drive bare boobs off the city streets. But what about bare bottoms? I slipped into my local bus shelter to be greeted by a wall-sized poster for an upcoming television drama dominated by the naked nether regions of a reclining female. The lace garter hid nothing. "There's nothing their chambermaids haven't seen already," read the script. But what about Mayor Dick?