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Long-running battle over power line prices coming to a head

Tuesday 21st August 2012

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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 percent ahead of two imminent court hearings.

The draft price-setting decision, if implemented on Dec. 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 percent.

The draft decisions are open for submissions and consultation for final decisions before Nov. 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 the national grid operator, Transpower.

Vector chief executive Simon Mackenzie said 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 percent in 2013," said Mackenzie. "Additionally, there will be a further price adjustment to back date 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 said.

In its draft decision, the commission stresses network charges make up only around 30 percent of the average electricity bill. It calculates the proposed 8 percent decrease in Vector's charges would only knock 4.2 percent off a residential power bill, while the 15 percent increase proposed for Top Energy, Alpine Energy, The Lines Company, and Centralines would have expected impacts of 13.4 percent, 6.3 percent, 8.6 percent, and 10.7 percent 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," the commission chair, Mark Berry, said in a statement.

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

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