Vector boss eager to enter new reform fray

By CHRIS DANIELS

Mark Franklin, the new chief executive of Auckland lines company Vector, came to his job in early February amid strife in the energy sector.

The Commerce Commission was threatening a regulatory regime that was making the 28 lines companies gag.

Outrageous, they all cried, saying a profit cap would inevitably lead to underinvestment and network deterioration.

Vector had just bought UnitedNetworks, making it by far the largest lines business in New Zealand, accounting for 40 per cent of all connections.

Former chief executive Patrick Strange had lost his job, after being asked to re-apply for the post to which Franklin was eventually appointed.

And now it turns out there may be an electricity shortage this winter.

If power rationing is introduced, then the lines companies will be the ones flicking off the electricity supply.

The Commerce Commission has now backed off from the most extreme of its regulatory ideas, while the well-respected Strange heads the national energy savings campaign.

But another round of power industry reform is in the air, and Franklin wants Vector, and the electricity lines sector, to be in the thick of it.

In 1999, then Energy Minister Max Bradford forced power companies to either be generators/retailers, or lines companies. They could not be both, because it was perceived the monopoly nature of the lines business would mean cross-subsidisation, leading to a distorted retail and generation market.

Franklin says it is time for this change, as lines companies, properly regulated, have shown themselves to be mature and responsible.

"Vector has the potential in this market, it's a large company, with a strong balance sheet, therefore it's got the potential to play a role in the market.

"Some of the smaller lines companies may not have the same potential as Vector, but Vector does - as a large strong company in the market, it should be able to play in different parts of the market."

This would include an ability to invest in generation, beyond the token amount lines companies are now permitted to. Franklin said the market rules would need to be changed, because they worked in favour of the big generators and provided a role for small, or even medium sized generating companies.

Franklin says he is not calling for lines companies to be "let off the leash", as they would continue to be regulated.

He is saying, however, that they should now be allowed to take part in more parts of the energy market than currently permitted.

This does not necessarily mean Vector would want to start retailing electricity - to cope with the Bradford split up, it sold the Mercury brand to the state-owned Mighty River power. "Vector hasn't made up its mind if it would like to be in retail, even if it had the opportunity," says Franklin.

"If they change market rules and structure, there may well be an argument to allow network companies back into retail to either a small or large extent."

Full accounting separation could address concerns about the monopoly side of the business subsidising its other activities.

Franklin has big plans for Vector.

He says he wants it to become one of New Zealand's top five enterprises, not just its biggest or best lines company.