Chris Daniels: Initial response to control seen as far from acceptable

Last week we caught a glimpse of what Vector thinks is an acceptable way to implement a Government-directed price cut.

The energy network company's claims that natural gas is a "discretionary fuel" that can be substituted for electricity carried weight when it lobbied against the initial decision to impose price controls.

After all, it argued, if it was abusing monopoly powers and price gouging customers, they would instead move to some other fuel.

Natural gas use should also be encouraged, said Vector, since direct use of gas - rather than it being burned in power stations to produce electricity - was more efficient. It would also help delay the need for investment in electricity transmission infrastructure.

Such arguments did fall a bit flat, though, when Vector's preferred method of obeying the Commerce Commission's directive to cut prices by 9.5 per cent was disclosed last week.

Its brainwave? To actually increase prices for domestic customers by 5 per cent, while offering price cuts to its industrial and commercial users.

Vector helped demonstrate a flaw in its own claims that gas is a discretionary fuel - namely, how many homeowners can easily switch their hot water heating from gas to electricity?

Homes are usually converted to gas from electricity at the time of major renovations, and once done, consumers are locked into paying the going rate for some time.

This barrier to switching fuels for domestic users may be one reason Vector thought it could get away with imposing a price rise on them.

Vector pleaded to the Government to be spared any price control from the commission.

"We simply do not understand why regulation of gas pipelines - a discretionary fuel with relatively low penetration - is required. Only about 25 per cent of customers that could connect to Vector's gas pipelines do so."

Surely this number is unlikely to increase if Vector takes a directive to cut prices as an invitation to do the exact opposite for its home gas customers.