20 Jul 2011

Vector objects to proposed price cut

12:37 pm on 20 July 2011

Lines company Vector has criticised proposals by the Commerce Commission that would require it to reduce average prices, saying the cut is unjustified and threatens investment in the sector.

Under a new regime to calculate how much lines companies should charge to reinvest in their networks from 2012 to 2015, the Commerce Commission found Vector, Powerco, Horizon Energy and Wellington Electricity were making excessive profits.

In its draft document to reset prices, the commission said Vector and Powerco will have to cut average prices by 9% in 2012/13, Horizon Energy by 10% and Wellington Electricity by 4%.

Top Energy could lift prices by up to 20% and Alpine Energy by 15%. Due to the Canterbury earthquakes, the draft decision does not apply to Orion.

Auckland-based network business Vector says the regulator has ignored past submissions challenging its approach to setting prices, and then changed its approach at a very late stage in the consultation process.

Vector had already called for a merits review under the Commerce Act that is reviewing the Commission's decision on inputs, including the starting asset base and weighted average cost of capital. The High Court won't start hearing the case until later next year.

The company's share price plunged 11 cents on Tuesday to $2.42 a share.

The head of the commission's regulation branch, John Hammill, says lines companies are free to adjust prices across their network, and if still disgruntled, they have the option to apply for a customised approach.

Dr Hammill has said distribution costs make up about a third of the final electricity bill to users.

A final decision will be made in October following submissions, and new prices will apply from April next year.