Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


ComCom takes issue with Vector on regulated rates of return

ComCom takes issue with Vector on regulated rates of return

By Pattrick Smellie

Nov. 30 (BusinessDesk) - The Commerce Commission says Auckland electricity network monopoly Vector is wrong to claim it is being subjected to regulated costs of capital higher than its Australian counterparts.

Vector has repeatedly made the argument in its protracted argument with the competition regulator, saying Vector faces greater business risks than Australian networks and should be reflected in a higher weighted average cost of capital when regulated prices are being set.

Instead, Vector says it faces an 8.77 percent WACC while Australian peers face WACC's of between 9.4 percent and 9.95 percent.

However, the commission's deputy chair, Sue Begg, says in slides prepared for an analysts' briefing in Wellington today that this is not a "like for like" comparison because Vector is not taking into account investor taxes, "notably dividend imputation."

As a result, Australian network WACC's are in a range of 8.66 percent and 9.17 percent, falling to a range of between 7.08 percent and 7.49 percent on a post-tax basis, well below the 8.77 percent applying to Vector.

The comments were part of the commission's confirmation of final default price-quality path pricing for 16 electricity distributors, which have been delayed by challenges to the commission's methodology by Vector, which must cut its charges by 10 percent as a result of the commission's ruling.

The decisions make only minor changes to the draft decisions already announced in August, and confirm the commission's view that Vector would be "over-recovering" $121.6 million a year without the price changes.

Vector is also amongst a large group of monopoly operators including ports and airlines seeking a merits review in the High Court of the way the commission has set its final pricing. If successful, that could see today's confirmed price paths being reopened.

Vector earlier this month lost a final appeal to the Supreme Court over the process the commission adopted to set the price paths.

The NZX-listed company's chief executive Simon Mackenzie said today's decision was "as expected".

"Today's decision requires a reduction in our electricity distribution prices by an average of 10 percent in 2013, with a further price adjustment in 2014."

Mackenzie said the regime created "perverse incentives" which made Vector a "victim of its own success" for lowering its costs and improving operational efficiencies.

"Our focus remains on the merits appeal process, which is well under way, with a decision expected in the first half of next year," he said.

The only changes of significance in today's announcements are a decision, at the request of four community-owned lines companies to limit allowable increases in their tariffs to no more than 10 percent in one year, for fear that higher increases would be difficult for customers to afford.

The affected lines companies are Alpine Energy, Centralines, The Lines Company, and Top Energy.

Network charges make up around one-third of the cost of electricity, so price rises and falls will not translate into electricity price cuts or increases for consumers of the same size.

Vector shares rose 1.1 percent in early trading on the NZX, to $2.67.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Interest Rates: Wheeler Hikes OCR To 3% On Inflationary Pressures, Eyes Kiwi

Reserve Bank governor Graeme Wheeler lifted the official cash rate for the second time in as many months, saying non-tradable inflationary pressures were "becoming apparent" in an economy that’s picking up pace and he's watching the impact of a strong kiwi dollar on import prices. More>>

ALSO:

Scoop Business: Equity Crowd Funding Carries Risks, High Failure Rate

Equity crowd funding, which became legal in New Zealand this month, comes with a high risk of failure based on figures showing existing forays into social capital have a success rate of less than 50 percent, one new entrant says. More>>

ALSO:

Scoop Business: NZ Migration Rises To 11-Year High In March

The country gained a seasonally adjusted 3,800 net new migrants in March, the most since February 2003, said Statistics New Zealand. A net 400 people left for Australia in March, down from 600 in February, according to seasonally adjusted figures. More>>

ALSO:

Hugh Pavletich: New Zealand’s Bubble Economy Is Vulnerable

The recent Forbes e-edition article by Jesse Colombo assesses the New Zealand economy “ 12 Reasons Why New Zealand's Economic Bubble Will End In Disaster ”, seems to have created quite a stir, creating extensive media coverage in New Zealand. More>>

ALSO:

Thursday Market Close: Genesis Debut Sparks Energy Rally

New Zealand stock rose after shares in the partially privatised Genesis Energy soared as much as 18 percent in its debut listing on the NZX, buoying other listed energy companies in the process. Meridian Energy, MightyRiverPower, Contact Energy and TrustPower paced gains. More>>

ALSO:

Power Outages, Roads Close: Easter Storm Moving Down Country

The NZ Transport Agency says storm conditions at the start of the Easter break are making driving hazardous in Auckland and Northland and it advises people extreme care is needed on the regions’ state highways and roads... More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news