Red tape riles lines companies

Leaders of the two biggest energy network companies are warning that industry over-regulation will lead to a critical lack of investment in ageing power lines networks.

Speaking at a power conference in Auckland yesterday, Vector chief executive Mark Franklin and Powerco chief executive Steven Boulton both referred to a looming "wall of wire".

Both are coping with new Commerce Commission regulations that cover the rate of price increases allowed and quality of service.

Both men say the new controls have arrived at exactly the wrong time: when money needs to be urgently spent on upgrading the power system.

The commission also told the two companies last year that they should have price controls imposed on their gas distribution businesses, after allegedly abusing monopoly positions by excess charging.

This has angered them, since only a small percentage of people on the gas network are connected to it - meaning there is no monopoly power to be abused, they say.

Franklin said that New Zealand's low-energy prices were not sustainable, since more infrastructure needed to be built.

Recent regulation had come at a "critical time in the investment cycle", with those lending money always wary of possible impacts of new rules.

Boulton said design of the new regulations did not reflect the fact that New Zealand lines companies were on the "uphill climb" - meaning that large amounts of capital expenditure were needed over the next few years. This money would be spent just keeping up with the replacement of ageing assets.

Price-path thresholds - the methods used by the commission to regulate prices - locked in the low levels of expenditure just as new load growth brought extra costs, he said.

Cost savings and price reductions brought in by the lines companies had not flowed through to customers, who had seen prices increased by the power retailers.

The Commerce Commission says that power lines companies, as monopolies, must be regulated to ensure customers are not taken advantage of and be gouged with excess prices. It has set thresholds - one for prices charged and the other for quality - which are not supposed to be breached.

Companies can make a case defending price increases and the commission says it will not necessarily move towards full price control for breaches. Both chief executives spoke of a problem in attracting and retaining skilled lines workers.

Boulton said young Powerco workers were being offered $10,000 sign-on bonuses, with pay rises of between 25 per cent and 50 per cent to go work in countries such as Britain, the United States, Australia and Ireland.

Regulation was heading into detail at a time when what was needed was a big picture focus.

* Boulton said yesterday that Powerco was raising $100 million in a bonds issue, aimed at New Zealand retail and institutional investors.

Interest rates on the five year, unsecured bonds will be fixed.

He said money raised by the issue would be used to "repurchase" bonds issued by the company earlier, now held by Prime Infrastructure, which took full control of Powerco last year.

Powerco, which was delisted once, has applied to Standard & Poors to have the bonds rated and hopes to register a prospectus on March 16, with the issue opening on March 21.

 

 

LINES COMPANY COMPLAINTS

Chief executives of Vector and Powerco say new regulations may stifle vital investment in power lines.

The Commerce Commission regulates the companies since they are natural monopolies, with the ability to raise prices unfairly.

It says rules are needed so customers share the benefits of new technology and efficiencies.

The network companies say there will be less investment if they cannot enjoy the benefits that innovation brings.