Vector boss: new laws will hurt investment

By Mark Reynolds

New laws for electricity lines businesses could put investment in the industry at risk, according to the chief executive of Auckland's largest lines company.

Patrick Strange, chief executive of Vector, writes in the company's annual report that Government moves to control line fees for customers has the potential to create a "false expectation" of significant short term drops in prices.

Dr Strange said networks like Vector's had to be constantly upgraded to ensure security of supply, and someone had to pay for that.

"So close to several major system failures around the world - our own CBD disaster, the larger Melbourne gas failure last year, and more recently the huge Buenos Aires power outage - and in light of the historical underinvestment in infrastructure in Auckland, it is a concern that focus in our industry is still completely on minimising price and operating costs, without balancing consideration of security," he said.

Vector will spend $60 million over the next two years upgrading its system, on top of the $129.2 million being spent on the CBD tunnel project. That compares with annual spending of $10 million-$12 million over the past 20 years.

Such spending would mean that the company's return on assets for the current financial year was "likely to be still be short of an acceptable level", he said.

After adjustments for one-time revaluations, the company's return on assets was 7.2 per cent in 1998/99. But the company aims to lift returns over time without system-wide price increases.

Dr Strange said that as a result of changes over the past 12 months the company was flatter, leaner and more focused on its network assets.

But its ability to deliver new services - like differentiated charges and standards for customers with different service requirements - would depend on new regulations.