Home power bills to rise

Vector caters to its 650,000 customers in the Auckland area and Wellington from its offices in Carlton Gore Rd, Newmarket. Picture / Glenn Jeffrey

Hundreds of thousands of Auckland households face higher power bills for the next three years after the Commerce Commission found they were getting a cheap ride at the expense of Wellington consumers.

The competition watchdog yesterday threatened to impose price controls on powerlines giant Vector unless it removes price differences between customers.

"These are very serious issues," commission chairwoman Paula Rebstock said. "Vector is only able to overcharge some customers and undercharge others by abusing its monopoly power."

The announcement wiped $270 million off Vector's sharemarket value and provoked criticism from investors.

Brook Asset Management chairman Simon Botherway said the declaration "sends a clear signal that the regulatory environment is out of control".

The commission claimed that a light industrial Wellington firm was paying $18,121 extra a year. It may benefit from a cut of as much as 24 per cent. Its competitors in Auckland, paying $6143 extra, may receive a cut of 14.67 per cent.

It is only the third time the commission has threatened to impose price controls on energy businesses. Last September it moved to control Hawkes Bay's Unison and in December tackled national grid operator Transpower. Both are now discussing a settlement.

Vector has about 650,000 customers in the Auckland area and Wellington. It is just over 75 per cent owned by the Auckland Energy Consumer Trust, which distributes its share of the Vector dividend to its beneficiaries in Auckland and Manukau cities and parts of Papakura as a rebate on power bills.

Paula Rebstock said the commission estimated Vector would earn $13 million to $75 million in excess revenue a year over the next two years - a figure potentially in excess of its $41 million net profit last year.

The commission has been monitoring Vector's actions to remove the imbalances since it noticed them just over two years ago. However, it has not been satisfied so yesterday revealed its plan for controls. It is now negotiating with Vector on a plan that, if implemented, would see line charges rise 4.6 per cent in the year to March next year and 2.8 per cent in the next two years.

Line charges make up 20 to 40 per cent of customers' power bills that average $1200 a year. This translates as an increase of more than $30 a year for the next three years for Auckland domestic customers. The power hike would come on top of higher rates and water bills for thousands of households across Auckland.

Consumers Institute chief executive David Russell said: "This looks like bad news for the residential consumer in Auckland." He said it was hard to tell if the move against Vector was justified but the strong tone of the commission's statement suggested it wanted to correct a serious problem.

Vector said it was "astonished" by the commission's claims, arguing that they were out of line with Government directives this week that regulated business should be confident of earning realistic returns.

"Vector rejects many of the commission's allegations, particularly the suggestion that Vector is earning excessive revenues," chief executive Mark Franklin said.

"We take issue with the selective way the commission has presented the information. Investment decisions on the board agenda ... are now in serious jeopardy because of the uncertainty created by the Government's actions."

Vector claims the price differentials reflect the fact that it is the product of mergers of several companies which had different pricing practices.

Employment and Manufacturers' Association chief executive Alasdair Thompson said: "Prices in the next five years will have to come down ... and customers should get back what they have been overcharged."