25 Oct 2012

Vector to fight proposed gas price cuts

8:22 am on 25 October 2012

Vector says it will fight the Commerce Commission's draft price changes that propose the energy company slash its charges to gas customers by up to a quarter.

The commission says Vector will have to cut its gas distribution charges by 16% and transmission charges by 25% under new pricing proposals for gas companies that would come into force from next July.

That means Vector's 144,000 residential customers could have their bills reduced by up to $5 a month.

In contrast, Powerco could raise its distribution charges by 5% which means its 101,000 customers would pay 60 cents more a month.

Vector says the pricing proposals would have a big impact on the firm's capital expenditure.

Chairman Michael Stiassney told Radio New Zealand's Morning Report programme the company has not been increasing its prices by any more than inflation.

He says the commission is using methodologies which the company believes are flawed and the proposals would not allow Vector to spend money on capital expenditure and operating expenses as it as done.

"We're very careful about what we spend but we do want to have a safe and secure system, whether it's electricity or gas."

The company's chief executive, Simon McKenzie, says gas companies are already challenging the methodologies used to set the prices in court.

"To give you an analogy, it's a bit like saying that you can earn a rental on a house with the property value in 2012 and then going back and saying, 'well actually we're going to use the property value of 2003 and so therefore you are overcharging your rents'".

Mr McKenzie says the company has had plans and forecasts reviewed and provided a great deal of information to the commission which it has subsequently decided to disregard.

He says if a court decision over the methodologies, expected at the end of November, goes in Vector's favour the Commerce Commission will have to revise its pricing proposals.

Vector and the commission agree that if the company wins in court, the entire price control methodology for pipes and wires will have to be redesigned.