Vector, Powerco ordered to reduce pipeline charges

Friday 31st October 2008

Vector, New Zealand's biggest power and gas distributor, and Powerco, a unit of Australia's Babcock & Brown Infrastructure, were ordered to reduce their pipeline charges by the Commerce Commission.

Vector must lower its fees by 3.7% and Powerco by 11%, and hold the charges unchanged, in real terms, until 2012, the commission said today, confirming an interim ruling in September.

The announcement marks the second such order from the regulator, which forced the pipeline operators to reduce the charges by about 9% in 2005 after accusing them of over-charging for what are monopoly networks.

Since the first cuts, prices have been held constant in nominal terms, resulting in real price reductions to date of about 19%, commission chair Paula Rebstock said in a statement.

"When combined with earlier price reductions imposed by the Commission in October 2005, the reductions announced today will result in total price cuts of 30% for Powerco and 22% for Vector on average," Rebstock said.

"The key public policy concern underpinning the regulatory provisions in the Commerce Act is the potential for abuse of market power by suppliers of monopoly services where competition is limited."

Shares of Vector were unchanged at $2.04 and have fallen about 6% this year.

By Jonathan Underhill

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