Constant regulatory 'tweaking' irks foreign funders, Vector tells court
By Pattrick Smellie
Aug 15 (BusinessDesk) – Potential foreign lenders to network monopolies such as Vector Ltd. are being put off by “constant tweaking” of the regulated pricing regime administered by the Commerce Commission, the Wellington High Court heard this morning.
In opening submissions for Vector in its application for a judicial review of aspects of the commission’s recent decisions dictating what it and other network owners can earn, Alan Galbraith QC said the commission’s actions were creating the opposite to the intended effect to Commerce Act reforms in 2007.
He quoted from a memo by an American funder to a senior executive at another major network company, Powerco, saying “one of the reasons we don’t like lending into New Zealand is that we don’t like the regime.”
“The constant tweaking is a credit negative. We have other places to put our money into,” the memo said, citing Australia’s larger opportunities and greater regulatory certainty.
Galbraith argued the reforms to Part 4 of the Commerce Act were expressly intended to increase regulatory and investment certainty, but had instead produced a “self-defeating outcome”, especially as the Commerce Commission had come to three different conclusions over the last year, each of which had material impacts on affected companies’ future earnings and investment intentions.
“Investors become gun-shy,” he said. The commission’s rulings were leading to higher costs of capital and lower prices.
In the current action, being heard by Judge Denis Clifford, Vector is seeking a judicial review of the commission’s decisions on the so-called “input methodologies” for calculating networks’ allowable rates of return.
The Auckland-based electricity, gas and telecommunications network operator argues the commission should have included a “starting price adjustment” in the input methodologies.
It is also seeking a “merits review” of the default price path determined by the commission, also to be heard by Judge Clifford, but not scheduled for hearings until late 2012.
“The intent of the default price path was to be a low cost way of setting a price path which wouldn’t require the extent of information required to do a full ‘building blocks’ approach,” said Galbraith. However, the approach being taken “means the extent of information required get the answer is closer to a full-blown building block approach which, for each supplier, will impose an unexpected burden.”
Galbraith argued the commission should be disclosing the data sets it intended using in its input methodology calculations, to allow investors a better understanding of what to expect, and to prevent the commission changing its approach at each seven yearly resetting exercise.
Without such certainty, “long term planning and capital raising is extremely problematic.”