22 Jun 2009

Vector to gain from commission rule changes - analysts

9:21 am on 22 June 2009

Vector is likely to benefit from the Commerce Commission's revised guidelines for estimating the cost of capital in the regulation of firms that own electricity and gas networks, say analysts.

They say the regulator is locking itself into a methodology that results in increasing prices over time, which recognises the need for these firms to have the right signals to invest in the infrastructure and energy-saving products.

The commission's discussion documents cover key questions, including how to calculate the cost of capital, how to value assets, and how to allocate common costs.

Vector chief executive Simon MacKenzie says the state of the economy and financial markets should provide an important context for working out these inputs questions.

Infrastructure companies hope the new rules on pricing so-called "natural monopolies" will unlock economic development.

They say the change will affect vital developments in the energy sector, mainly electricity wires and gas pipelines.

The companies running these sectors of the economy were subjected to stiff price controls earlier this decade to prevent price gouging.

They argue that the consequence has been to starve - and in some case completely stop - funds for vital development.

A law change last year aimed to remove these disincentives and the commission has now unveiled how it will do this.

Submissions on the documents close in July.