Thursday, 10 August 2006

Vector: Attack of the bureaucrat

What is there to say about the decision by the Communist Commission to tell Vector who and who they can charge that hasn't already been said? Vector's shareholders have already spoken, selling it off just as Telecom was sold off after an earlier dramatically-spun announcement of government meddling. "One analyst said the commission's decision was a "kick in the guts" for the New Zealand sharemarket." Which means for all New Zealand businesses.

Libz Energy spokesman Greg Balle has also spoken, saying this morning at 'Scoop' most of what needs to be said [watch out for some odd HTML]

Something is very wrong with the electricity infrastructure in New Zealand. We have the Commerce Commission deciding to intervene in the supposedly free market to dictate pricing, costing and any other thing it deems necessary to providing cheap power to the people. Comparing state intervention in electricity with centrally-planned Communist Russia, Balle reminds us: "The last time this stunt was pulled, the people ended up largely without power, shivering in the dark."

"Tick off the bureaucratic errors to date," Balle says, and then goes on to do so. Go and have a read.

And why does the Communist Commission's Head Commissar Paula Bloody Rebstock insist on meddling? As I've said before, "Most western countries have laws against 'anti-competitive behaviour,' and most people think those laws are there to protect consumers. Think again." Last year, for example, on the subject of Telecom, former Libertarianz leader Russell Watkins said:
The only thing that needs to be regulated is the government, the only price that needs fixing and reducing is government spending, the best savings for the consumer will come when the government abolishes outfits like the interfering Communist Commission—and many more government departments besides.
Quite right. What empowers Rebstock and her fellow Commissars is the ridiculous idea of 'antitrust' - the idea that governments need to enforce 'pure and perfect competition' in order to preserve a 'free' market. As I said on that topic last year:
Nothing could better summarise the underlying anti-success motif of Antitrust laws and the motives of the meddling arseholes who infest our own local Communist Commerce Commission (who most recently announced they would be 'reviewing' Fairfax's purchase of TradeMe with a view to throwing a spanner into it). More on this in the book 'The Abolition of Antitrust' (reviewed here) and the Antitrust is Anti-competitive page of Capitalism.Org.
Does anything more need to be said? Then George Reisman has probably already said it: the model that Rebstock wish to impose is a floating, 'Platonic,' idea of competition that bears no relation to the real world. Vector's shareholders are the first to realise that. Vector's consumers will be the next.

UPDATE: There's one more thing to be said, and it's been said at Ruth's: "More shareholder wealth destroyed. Airports will be next. Shareholders seem way more upset about this than Telecom, too. Witness this late night, drunken rant from an outraged shareholder..." Read on for that rant, and for a graphic depiction of The Destruction of Wealth by Bureaucrat.

First they came for Telecom. Then they came for Vector...

LINK: Electricity regulations crippling industry - Greg Balle, Libertarianz, Scoop
Vector reels at commission plan - Stuff

Free competition at gunpoint - Not PC (Peter Cresswell)
Antitrust is anti-competitive - Capitalism.Org

'Pure and perfect competition' - Not PC (Peter Cresswell)
Platonic Competition (Part 1) - George Reisman's blog
Platonic Competition (Part 2) - George Reisman's blog

RELATED: Economics, Politics-NZ, Libz

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Anonymous ruth said...

Vector screwed the public with their IPO of course...

But still the biggest threat to business is the regulatory environment.

10 Aug 2006, 15:56:00  
Anonymous ruth said...


REL: 1536 HRS Vector Limited

GENERAL: VCT: Vector sets the record straight

Twenty four hours after the Commerce Commission's announcement, there are a
number of misleading reports which need to be corrected so the New Zealand
public has an accurate understanding of where Vector stands, Vector CEO Mark
Franklin said today.

Vector is not deliberately cross-subsidising customer groups or favouring
Auckland residential customers.
"This is simply not the case. The reason the different pricing levels exist
is historic. We acquired electricity networks in different regions with
different pricing structures. At that time we identified the discrepancies
and moved quickly to address them and reset them to a level playing field for
all customers.

"We are shocked at the Commission's allegations of abuse of monopoly power
and absolutely deny them. This issue is not related to Vector's market
position. It is an historic issue which we are cognisant of and are already
in the process of fixing over a four year period."

Vector voluntarily initiated a programme to address historic return
differences two years ago.
"We are two years into a four year rebalancing programme. This was initiated
by Vector and we have fully informed the Commission on the programme and our

Mr Franklin said different pricing structures are common for infrastructure
companies as these are largely legacy issues and rebalancing is a process to
ensure equality across customer groups. However, the timing of this has to be
balanced against investment needs of different customers and geographical

Rebalancing is not a feature of the Commission's own threshold regime. This
matter has only recently been raised by the Commission at an energy
conference where the directive was for all lines companies to achieve
rebalancing by 2009. There has been no guidance or methodology by the
Commission or legislative requirement on how this should be achieved.

Vector is implementing rebalancing too slowly
Mr Franklin said the rebalancing was planned in 2004 for a four year period
to ensure a smooth transition path for all customers. "Some customers will
have price increases and we wanted to avoid the severe impact on them if this
had been implemented over too short a period."

Mr Franklin also explained that the Commission had previously advised Vector
that it was appropriate for Vector to complete the majority of the
rebalancing exercise by 2009.
Vector is not making unreasonable returns.
Vector's rate of return of 8.2% for FY07 is the result and outcome of
complying with the Commission's own regulatory regime. In complying with the
threshold regime set by the Commerce Commission, Vector has also recovered $8
million less than the amount allowable.

However we do not view 8.2% as a 'commercially realistic rate of return' for
our business especially for Vector to be able to invest in existing and
future assets for the benefit of consumers.

Vector has been engaged with the Commerce Commission on this issue and was
aiming for a constructive resolution
"We have been in dialogue with the Commission for months on this issue and
they were fully aware of our plans and commitment to rebalance. We have had
correspondence from the Commission acknowledging this. We do not understand
their extreme reaction. However, we will continue to work through the
Commission's process with the hope that we can reach a constructive

This impacts Vector's ability to invest.
"Vector was encouraged by the Government's announcement on Monday which gave
us a strong signal that incentivising infrastructure investment was a top
priority. Together with the Board we had started to look at how we might
accelerate some investment plans given the confidence gained from the
Government's statements.

"As of yesterday all those plans are back on the shelf. This is not what this
country needs and we are extremely disappointed to be forced into this
position. Consumers want certainty that their lights will be on in the short
and long term and that is exactly what we want to provide.

"The Commission is stymieing our ability to deliver."

Philippa White
External Communications Manager
Ph: 09 978 7638
Mobile: 021 579 522

10 Aug 2006, 18:29:00  
Anonymous Anonymous said...

You know - what's even more frightening is that people within the commerce commission have made it absolutely clear that they are out to screw various companies. They have said (off the record, of course) "We don't like you. We are going to screw you". Companies under the control of the CC have asked for clarification / interpretations on statements by the CC. The CC has refused to comment / elaborate, and instead told the company to interpret it themselves, but that they will be prosecuted them later if they get it wrong.

10 Aug 2006, 22:25:00  
Anonymous Spam said...

First they came for Telecom...

No. First they came for PowerCo. Where they price controlled them. Did you know that as part of this, they also price-controlled PowerCo's Metering business which is actually competitive and not a monopoly, and prices were actually competitive as well?

11 Aug 2006, 08:12:00  

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