Vector row threatens future of power cuts

New Zealand faces a future of power cuts after a competition watchdog's clampdown on power line charges, electricity lines firms warned yesterday.

Auckland's Vector, potentially setting a precedent for the rest of the industry, warned that it could not guarantee the security of the region's power supply in the long term because the Commerce Commission was not letting it make enough profit on its investments.

It has put on hold or is reviewing $630 million of spending.

Vector chief executive Mark Franklin said: "If we cannot invest to make a good and proper return on investment then reliability of supply will suffer."

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The Electricity Networks Association, which represents the interests of New Zealand's 24 power lines companies, said all its members would be reviewing their plans.

"There is too much money at risk," said association chief executive Alan Jenkins. "The industry was built in an era when security and reliability were the fundamental drivers and it is being shifted into an era where physical reliability takes second place to the regulator's perceptions."

The threats drew strong condemnation last night. Auckland Mayor Dick Hubbard said: "Power is an essential commodity and we cannot have Auckland effectively blackmailed by such an approach."

Consumers' Institute chief executive David Russell described the development as a "high-priced poker game" with consumers caught in the middle.

"They're attempting to call the commission's bluff by saying, 'if we don't get our way, then we're not going to invest'."

The dramatic moves follow the commission's allegation last week that Vector was abusing its monopoly position.

The regulator said hundreds of thousands of Auckland homes were paying lower line charges at the expense of consumers in Wellington and on the North Shore. It said Vector would have to raise its line charges over the next three years to comply with its rules.

The commission estimated that Vector, with about 650,000 customers in the Auckland area and Wellington, will earn $13 million to $75 million in excess revenue a year over the next two years. This is potentially more than its $45 million net profit in the year to June.

Vector, which is just over 75 per cent owned by the Auckland Energy Consumer Trust, has lost more than $350 million from its market value since the announcement.

Its shares closed last night at $2.30, below last year's float price of $2.38.

Vector said it would change its position if it reached a settlement with the commission or the Government stepped in to resolve the impasse.

Chairman Michael Stiassny said the decision would flow on to other New Zealand businesses.

"What happened last week says to New Zealanders that the regulatory creep is over, it's now a regulatory avalanche."

The $630 million now on hold or deferred included $400 million of spending on new projects, such as the new gas pipeline to the planned Kaipara power station and advanced electricity meters to help consumers use power more efficiently.

The remainder, to be reviewed item by item, was earmarked for general expenditure and upgrades.

Mr Stiassny said even the expansion of Vector's networks into new subdivisions at Flat Bush, Albany and Silverdale North would be reviewed.

Prime Minister Helen Clark said the commission had the right to regulate the industry as it felt fit.

"It is clear that Vector and the Commerce Commission need to engage constructively with each other with a view to reaching a settlement."

Genesis said it was confident the necessary infrastructure would be in place to run its station at Kaipara when it was commissioned in 2009.

The commission declined to comment last night.

- additional reporting: Errol Kiong