Long-running power line prices battle coming to a head

BUSINESSDESK: A battle over the prices monopolies can charge is coming to a head, with the Commerce Commission reissuing a draft decision that would see Auckland network owner Vector cut its electricity lines charges by 8% ahead of two imminent court hearings.

The draft price-setting decision, if implemented on December 1, would also allow electricity lines companies supplying some of the country's most remote, rural areas to raise their charges by as much as 15%.

The draft decisions are open for submissions and consultation for final decisions before November 30.

This coincides with a Supreme Court appeal next month and a merits review hearing in the High Court in October on the vexed issues which have been in dispute as the commission seeks to reset prices for monopoly networks for the first time since 2001.

The Supreme Court bid by Vector challenges the commission's approach taken to the need for so-called "starting prices" in the input methodologies it has developed for monopoly price-setting.

The October hearings in the High Court relate to a review of the commission's input methodologies themselves, in particular its decisions about appropriate weighted average returns on capital to apply to monopoly businesses.

Alongside Vector in the merits review are a range of fellow monopoly operators, including the Auckland, Wellington and Christchurch airport companies, electricity network owners Power Co and the Wellington Electric Lines Company, as well as national grid operator Transpower.

Vector chief executive Simon Mackenzie says today's draft decisions from the commission justified his company's decision to fight the competition regulator's approach, which he claims will stifle investment in vital infrastructure by preventing investors from making commercially attractive returns.

"Despite being under price regulation since 2001 and keeping within the regulated price path, the commission's draft decision proposes that we reduce our electricity distribution prices by an average of 8% in 2013," he says.

"Additionally, there will be a further price adjustment to backdate the change to 2012.

"Today's decision is based on flawed methodologies, such as the assumed asset values and WACC, as well as not providing a complete regulatory package," he says.

In its draft decision, the commission stresses network charges make up only around 30% of the average electricity bill.

It calculates the proposed 8% decrease in Vector's charges would only knock 4.2% off a residential power bill, while the 15% increase proposed for Top Energy, Alpine Energy, The Lines Company, and Centralines would have expected impacts of 13.4%, 6.3%, 8.6% and 10.7%, respectively.

"The approach we have taken aims to ensure there is an appropriate balance between providing incentives for suppliers to invest in their networks, and ensuring that consumers are being charged prices that are more aligned with the cost of the services they receive," commission chairman Mark Berry says..

Vector shares have traded down 2 cents to $2.70 today.