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VECTOR line profits raise concern of consumers

The profit results announced yesterday by VECTOR highlight the concerns of consumers about the activities of electricity monopolies according to the Executive Director of the Major Electricity Users Group (MEUG), Mr Ralph Matthes.

The Chairman of VECTOR, Mr Wayne Brown, commented on the improved result by VECTOR where after tax profit increased from $49.2.million to $94.2 million.

Mr Matthes said VECTOR’s customers were entitled to know:

 Why they should accept Mr Brown’s statement that “left alone, we won’t be touching prices”, whereas every other business tries to be more efficient and reduce its costs instead of simply taking the attitude that unless it is forced to it won’t reduce costs and prices.

 How was the $45 million increase in profit achieved?

 What were the “unspecified one-off gains from the sale of its interests in Southdown and McLachlan geothermal plant”?

 Whether the reported 7% Return on Investment (ROI) is a fair measure of VECTOR’s performance or whether it reflects an inflated asset value and or a raft of inefficiencies and or fudged cost allocations.

 Why did VECTOR expect in the future to earn a 10% ROI, when Transpower which arguably has the same or even more risk, has a target ROI of between 6% and 7% ROI .

The only positive aspect of Mr Brown’s announcement was his acknowledgement that the $110 million tunnel from Penrose to the CBD should never have been built. We will therefore be looking to VECTOR to ensure that the cost of that poor investment decision is not included in any future Optimised Deprival Valuation (ODV) of the company – otherwise it could extract a ROI from consumers. Rather the cost should be borne by the companies shareholders.

“What yesterday’s announcement highlights is the very weak regulatory regime that companies like VECTOR currently face” stated Mr Matthes. “It is ironical that monopolies such as VECTOR can parade profit results and make claims about future profit and price levels without being answerable to the users of their networks, that is consumers and retailers.”

He said every competitive business in New Zealand has the discipline of potentially losing market share to its competitors and this keeps costs and prices honest. Line companies do not face any real disciplines and they tend only to pay lip service to the concept of information disclosure stated Mr Matthes.

The community should be aware that the performance of line owners (and their auditors) in meeting their information disclosure requirements was described as “almost without exception, highly unsatisfactory” by the Ministry of Economic Development as recently as December 1999.

Mr Matthes said that a study undertaken by MEUG also revealed serious discrepancies and inconsistencies with the way that some line companies were reporting their activities. In most cases consumers ended up paying more for their line services than they should be and any talk by the Chairman of VECTOR that its rate of return should be higher is unjustified.

All consumers were looking to the Government to ensure that the line companies were subjected to price control and that these monopolies could not simply charge what they chose. Consumers were optimistic that these forms of control would emerge from the Ministerial Inquiry into Electricity that would be reporting to Government in June.

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