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 over the 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 today 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. 

The commission acknowledged Vector’s co-operation with its investigation. 

“We strongly encourage regulated suppliers to engage with the commission when planning transactions that could significantly affect their RAB or consumer pricing. 

The watchdog first identified the increased RAB in its review of Vector’s information disclosure in October 2020 and initiated an investigation in December that year. 

Vector chief executive Simon Mackenzie said: “We worked hard to resolve this matter of interpretation with the commission including proactively sharing expert legal and accounting advice. 

“We will always consider options to enable us to continue to fund the investments we need to make to meet the challenges of increased demand brought about by the growth of Auckland and the response to climate change, while creating a cleaner energy system that is reliable and affordable for our customers,” he said in a statement. 

Subsequent engagement with Vector over 2021 and 2022 included referencing the potential for court action to prevent consumer harm – from interim pricing changes – and address what the commission alleges was the incorrect regulatory treatment of the transactions. 

The Commerce Commission has previously taken enforcement action against Vector. 

In March 2019, after a ComCom application, the High Court ordered Vector to pay a penalty of $3.6m penalty for breaching its network quality standards through an excessive level of power outages. 

In July 2017, under a settlement with the commission, Vector returned $13.9m to Auckland electricity consumers after breaching its regulated price path by recovering more revenue than it was entitled to.