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

 


Vector to cut gas distribution prices by 18%

Vector to cut gas distribution prices by 18%

Feb. 28 (BusinessDesk) - Competition regulator the Commerce Commission has confirmed that gas distribution network owner Vector will have to cut its prices by 18 percent, and cut its wholesale gas transmission charges by 29.5 percent.

The final determinations are in line with earlier drafts, and remain the subject of a High Court merits appeal led by Vector and supported by a range of monopoly service providers such as electricity, port, and airport operators who believe the commission is using the wrong inputs to determine regulated pricing.

In the meantime, Vector chief executive Simon Mackenzie argued to journalists this morning that the reduced pricing, while contested, was a tribute to Vector's operational efficiencies.

Mackenzie said it was a "paradox of regulation" that if a regulated company managed its costs well and improved its profitability within the limits of its mandated pricing, it could effectively suffer a penalty by being required to cut its prices further.

Vector is objecting particularly to a "massive swing" in the assumed cost of capital being used by the commission to determine pricing. While the reductions reflected lower international interest rates, risk premiums were rising.

"If you look at recent decisions in the UK, in the low interest rate environment, the regulator has kept their weighted average cost of capital at the same level because of a need to adjust the market risk premium," Mackenzie told BusinessDesk.

The new price reductions hit Vector hardest. Other gas distributors face decreases of between 2 percent and 4 percent.

"Although substantial price reductions are necessary for Vector, we do not expect this to limit its ability to maintain and invest in its network," the commission's deputy chair, Sue Begg, said in a statement. "The default paths provide for increases in investment of up to 20 percent above what a business has spent historically."

Companies could also apply for a customised price path to replace the commission's default settings.

A decision from the merits review is expected in the second quarter of this year and could, depending on its outcome, lead to further adjustments to gas and electricity network pricing.

At its half year result announcement last week, Vector warned earnings in the second half of the current financial year would suffer as cuts to network pricing took effect. The company achieved a 10.8 percent lift in tax-paid earnings to $118 million in the six months to Dec 31.

Vector shares were unchanged in early trading this morning on the NZX, at $2.84.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Statistics: Dairy And Travel Still Our Largest Export Earners

New Zealand earned $2.3 billion more from exports than we spent on imports during the year ended June 2015... total exports of goods and services were $67.5 billion, while total imports were $65.1 billion. More>>

ALSO:

Approval: Air New Zealand And Air China Launch New Alliance Route

Air New Zealand and Air China have today launched joint sales for a new daily direct service between Auckland and Beijing after receiving approval from New Zealand Minister of Transport Hon Simon Bridges to form a strategic alliance. More>>

ALSO:

Money Trading: FX Trader Jin Yuan Finance Warned Over Lack Of Monitoring

Jin Yuan Finance, an Auckland-based foreign exchange trader, has been warned over its lack of anti-money laundering processes in place in the first public notification by the Department of Internal Affairs. More>>

ALSO:

Auckland Surge, Possible Peak: House Values Accelerate At Fastest Annual Pace In 8 Years

New Zealand residential property values rose at their fastest annual pace in eight years in August, pushed higher by overflowing demand in Auckland, which is showing signs speculators think it has reached its peak, according to Quotable Value. More>>

ALSO:

Cash Money: Reserve Bank Launches New $5 And $10 Banknotes

The $5 and $10 final banknotes were revealed at an event at the Bank in Wellington, and will start to be released from mid-October 2015. More>>

ALSO:

Truck Sales Booted: Commerce Commission Files Charges Against Mobile Trader

The Commerce Commission has filed charges against a mobile trader, or truck shop operator, claiming he obtained money from customers by deception and never intended to supply them with the goods they paid for. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news