Vector’s move to increase prices ‘can’t be justified’

A Commerce Commission investigation has led to a backdown by New Zealand’s largest electricity distribution business, Vector, on moves that would have cost customers millions of dollars in coming decades.

Deputy chair of the consumer watchdog, Sue Begg, said the commission’s investigation began in 2020. Subsequent engagement with Vector prompted the reversal of its regulatory treatment of sale and leaseback transactions, which had resulted in a $300 million asset revaluation.

Sale and leaseback deals typically involve companies selling property to free up balance sheet capital and then leasing the property back.

The commission said the revaluation would have enabled the company to significantly increase charges to consumers, without providing any service improvements or infrastructure investment.

The commission yesterday issued a formal warning to Vector.

Begg said: “This should send a strong message to all regulated suppliers that we will act to protect consumers from price increases that can’t be justified”.

In March 2020, Vector entered into the transactions involving two of its wholly-owned subsidiaries, selling its CBD tunnel and a portfolio of substation land and building assets, then leasing those assets back from its subsidiary companies.

In the commission’s view, Vector’s approach to valuing those transactions was inconsistent with rules under the Commerce Act 1986.

Vector has now reversed its regulatory treatment of the transactions that would have increased its regulatory asset base (RAB) by about $300m.

This would have allowed Vector to earn much greater revenues from its electricity consumers over the estimated 30 to 40-year duration of the leases.

“It is a good outcome for consumers that Vector has reversed its regulatory treatment of its transactions, which has removed the potential impact of higher costs on their electricity bill,” Begg said in a statement.