Commission Accepts Vector Settlement Proposal

The Commerce Commission today announced its acceptance of the settlement proposal put forward by Vector as an alternative to regulatory control being imposed in respect of its electricity distribution business.

In August 2006, the Commission announced its intention to declare control over the electricity distribution services of Vector after it reached the view that Vector's pricing strategy was inefficient and not cost-reflective. Some consumer groups were being significantly overcharged while others, including Auckland residential consumers, were being undercharged. In response to that intention, the Commission received an administrative settlement proposal from Vector in October 2006. This proposal was updated in January 2007.

Following consultation with interested parties on Vector's proposal, the Commission has now concluded that Vector's settlement proposal is consistent with the objectives of the regulatory regime.

"The Commission considers that Vector's administrative settlement addresses the concerns identified by the Commission, but with significantly lower compliance costs than would be the case if regulatory control was imposed. Vector has initiated rebalancing in its pricing strategy so that consumer groups that were being significantly overcharged have seen their prices reduce. This tariff rebalancing programme will be completed by March 2009," said Commerce Commission Chair Paula Rebstock.

"The Vector settlement proposal also explicitly acknowledges that Vector will continue to invest in its distribution networks to maintain a secure, reliable and safe electricity supply," Ms Rebstock said.

Vector's proposal involves the company rebalancing its line charges within its existing price path threshold to different regions and consumer groups so that the prices paid by consumers better reflect underlying costs, demands and service quality. The rebalancing will eliminate cross-subsidies between consumer groups. The removal of cross-subsidies means that the distribution component of some consumers' power bills has reduced while for others it has increased. Vector's distribution charges comprise around 20% 40% of the average power bill.

Acceptance of Vector's proposal means that the Commission can close its post-breach inquiry into Vector's price-path threshold breaches.

"The Commission acknowledges that the Vector Board and management have worked positively with the Commission to achieve this outcome," said Ms Rebstock.

The Decision is available on the Commerce Commission's website www.comcom.govt.nz under IndustryRegulation/Electricity/ElectricityLinesBusinesses/TargetedControl/vectorintentiontodeclarecontrol.

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