Vector has its eyes on electricity retailing

By CHRIS DANIELS, energy writer

Vector, the nation's biggest power lines company, is lobbying the Government to allow it to sell electricity in competition with the big power retailers.

Now regulated under new Commerce Commission thresholds, Vector could come under price control if its prices rise too fast or its service quality drops too low.

The company claims the new regulation means that old rules forbidding lines companies from retailing electricity are out of date.

Under the former National Government, power companies were told they could not run a monopoly power lines business, while also generating or retailing electricity.

Rules about generation have since been relaxed, but Vector says it makes no sense for it to generate electricity if it can sell it only into the wholesale electricity market.

Vector is trying to have the restrictions on its power retailing lifted in the new Electricity and Gas Industries bill now before the commerce select committee.

In a letter sent to senior cabinet ministers, Vector chief executive Mark Franklin says no limits should be applied to lines companies either generating or retailing electricity.

When new Zealand desperately needed new investment in generation capacity it made no sense for a large body of potential investors such as Vector to be prohibited from investing.

The letter says Vector did not believe it would be commercially viable to invest in electricity generation without a retail involvement.

Franklin told the Business Herald that Vector was not anticipating any involvement in mass retailing, but wanted the ability to sell any power it produced to an end customer.

So-called "vertical integration" allowing lines companies to invest in generation and retailing, should be permitted.

"Recent developments, including the cancelling of Project Aqua, make it even more imperative that the Government creates a regulatory environment that facilitates the achievement of its objectives for the electricity industry."

The letter says the separation favoured by then Energy Minister Max Bradford was not based on advice from officials.

Officials, said yesterday Vector considered the benefits of legal separation to be outweighed by the likely costs.

While separation would reduce the problems of line access and cross-subsidies, other reforms could do this, such as the threat of price control.