Editorial: Power and the need to intervene

Opinion

Customers of Vector, the Auckland electricity and gas company, will have divided loyalties as they watch its battle with the Commerce Commission. Households south of the Waitemata have been the main beneficiaries of the differential pricing that the commission wants to stop. Those on the North Shore and other places, and all of Vector's commercial customers, have reason to cheer the commission's intervention.

Business, though, faces a dilemma. While it would welcome a more equitable pricing regime, it is becoming more disturbed at what it calls "regulatory creep". When a government gives the wrong signal, officialdom at every level is emboldened to make decisions best left to companies who suffer if they misread markets.

The Government may have given that signal, unintentionally, when it decided to forcibly "unbundle" Telecom's line monopoly. The Commerce Commission, which keeps a regulatory brief on many sectors besides electricity, began flexing its muscle. The Electricity Commission, created by the present Government to see that generating companies have reserve capacity for dry years, decided to wade into transmission issues, questioning Transpower's urgent need of giant pylons to feed Auckland.

The pylon question was not to the Government's liking. It intervened against its own regulator to emphasise that security of supply trumped all other considerations. That could signal a reverse. It may be taken as a sign the Government will come down against its own regulators if their actions threaten to turn the power off.

Vector is duly fighting back against a threat of price regulation with the only heavy weapon at its command. If it is not allowed to make a competitive return on its capital, Vector says, it will review its plans for further investment in its network. And that, it warns, would mean it could no longer guarantee the security of the region's supply.

Is it bluffing? The Commerce Commission believes so. Chairwoman Paula Rebstock points out that the regulations governing Vector require that investment is maintained to provide security and quality of supply. That will not change if she carries out her threat to set Vector rates more equitably and limit the company to a lower level of profit.

Vector and its main shareholder, the Auckland Energy Consumer Trust, insist that the company requires its present rate of return to make it worthwhile investing in the line network. And it says the inequities in its charges are anomalies dating from its takeover of other suppliers, which it is correcting over four years. The commission is unconvinced and so, probably, are those being overcharged.

Vector is flush with funds earned mainly from a line monopoly that can hardly fail in commercial terms. Its acquisition of gas lines further limits the competition it could face. It is answerable mainly to an elected public trust holding a 75 per cent stake, and the elections to the trust do not attract much voter interest.

In short, Vector is not the kind of company that can be safely left to the oversight and disciplines of a market. Other power line companies have rushed to endorse Vector's threat to put investment plans on hold if the commission does not relent. But business consumers should be wary of joining the chorus.

It is an accident of history that local line companies are in the private sector at all. They had the good fortune to be privatised as retail consumer servicing companies and the lines were subsequently separated from billing operations to make costs more transparent. The Commerce Commission can see transparent excesses. It is right to intervene.