Vector urges total review of price regulation for monopolies

Monday 3rd October 2011

Auckland electricity and gas network owner Vector is calling for a “fundamental review” of the process for regulated price-setting on monopoly utility providers following its success in the High Court against the Commerce Commission last week.

Vector won a judicial review of the way the commission develops the inputs it uses to set the so-called “default price path” (DPP) that determines how much monopoly network owners can earn from their assets.

The Commerce Commission has advised Vector it is suspending its previously announced proposed reset of the DPP for 2010 to 2015 until further notice because of the High Court decision.

“Given the government, investors and capital markets have all articulated a need for regulatory certainty, I believe the suspension of the reset provides an opportunity for a fundamental review of how the default price path process will progress,” Vector’s chief executive, Simon Mackenzie, said in a statement.

“This is an opportune time for all parties involved to review how regulatory certainty can be achieved in an efficient manner to meet the long term interest of consumers and investor needs, without re-commencing an extremely costly and lengthy process,” said Mackenzie.

Judge Denis Clifford found the commission had misinterpreted Part 4 of the Commerce Act in several key respects, including failing to provide a Starting Price Adjustment Input Methodology (SPA IM) from which to calculate the DPP.

Vector sought judicial review of the commission’s input methodologies, claiming its original determination would stifle investment in essential infrastructure by failing to be clear about all the elements of the methodology and assuming an ability to change key elements at will.

“We had a very strong view that we have to see the full picture so that we can submit on all the various parts, as opposed to seeing only parts of the picture and rather than things changing as we go along,” Vector chief executive Simon Mackenzie told BusinessDesk.

“This ring-fences the degree of freedom the Commerce Commission has on changing things.”

Vector’s broader concern, shared by other regulated network operators, is its ability to earn commercial rates of return on its assets, and the High Court action is only the first step in a wider legal strategy to seek a “merits review” of the components of the input methodologies, and a challenge as to whether the commission has committed “errors in law” in the way it has constructed its decisions.

BusinessDesk.co.nz

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