Vector Dividends

 Keith Rankin, 4 February 2001


Despite the protracted nature of the dispute between the Auckland and Manukau City Councils (and Papakura) on one side and the AECT (Auckland Energy Consumers Trust) and Vector on the other, I cannot recall seeing a contribution by an economist on your pages.

The current battle will mercifully end on February 8 if the Auckland Council follows Manukau and Papakura in accepting the judicial outcome of the dispute. The people of Auckland will then receive what is rightfully theirs; an equal share of the revenue that Vector (formerly the Auckland Electric Power Board and, for six years, Mercury Energy) has paid to its corporate owner, the AECT.

One reason for the silence of economists on this matter is that economic theory, which has much to say about private property rights, has very little to say about public property rights. That knowledge gap is one reason why economists seem to have a bias towards either privatisation or corporatisation of public assets. Such ownership structures establish exclusive property rights.

Even when considering intellectual property and knowledge, conventional economic analysis looks for efficient ways of excluding the public from accessing such 'commodities' without paying a copyright fee, and excluding the public from the income such assets generate. New inclusive concepts emerging in the software industry (such as 'copyleft') remain beyond the radical fringe of economics.

So how would this economist resolve the ACC/AECT/Vector dispute?

Vector is an electricity transmission company - a 'lines company'. That makes it a natural monopoly, which means that, if unregulated, it can be expected to make higher profits than normal companies.

It is my view that all natural monopolies should be in some form of public ownership. The regulatory emphasis should be on ensuring such firms maximise profits within the context of their charters. When we own and profit from our power grid and charge high but not exorbitant prices for its use, then the public benefits in two ways: energy is conserved, and most consumers gain more in dividends than they lose through higher prices.

Vector, and other publicly-owned utilities, can play a significant role in reducing the inequalities that have built up in our society since 1985. There should be full [1], equal and frequent distributions of profits to the people of Auckland. I find it somewhat ironic that left-leaning politicians (such as Deputy Mayor Bruce Hucker) should play an active role in delaying and reducing the distribution of Vector profits to their constituents, many of whom are in debt and in poverty.

Brian Rudman noted on 22 January that "due to the vagaries of the legal system" the Auckland Councils were designated as Vector's 'capital' interest under the 1964 Perpetuities Act. These vagaries persist because there has not been enough academic attention given to public property issues to enable a revision of such antiquated laws.

Vector's assets will transfer to the councils in 2073. In the meantime, Vector shows up as an asset on the councils' books. The Auckland City Council seems determined to ensure that that book entry does not depreciate during its long wait to possess Vector.

Vector is not trying to cheat the councils. Rather, when converting in 1999 from a combined lines and retail company to a lines company only, some assets no longer required were sold. There is no reason at all why the present owners should not benefit from that one-off sale of assets.

The full dividend should be paid out to the people of Auckland without any further obstruction.

There is one further question that needs to be resolved some time in the future. On what exact basis should the AECT trust fund be distributed? The question has been settled for now; each Vector account holder will receive an equal portion of the fund.

In the absence of any public debate, there has been an assumption that the funds managed by the AECT are the property of Vector's customers, as consumers. Hence, it is argued by some that higher-consuming business customers should receive bigger dividends than domestic consumers.

This issue is too big to be re-adjudicated before the current distribution. What matters now is that we are not hidebound by precedent. The fact that businesses got a bigger share of the former Mercury Energy's profits in the past is no reason why they should get a bigger share now, or even why they should get a share at all in the future.

Most businesses are not conducted on the basis that their consumers are also their owners. Businesses who buy from the present Mercury Energy don't expect a dividend from that state owned enterprise. In general, public ownership is determined by citizenship or residence, and not by consumption patterns.

A model worth looking at for the future is that adopted by the US state of Alaska. Alaska's energy interests are owned, publicly, by the Alaska Permanent Fund Corporation ( The APFC pays an equal dividend to every man, woman and child who qualifies as a resident of Alaska. Last year, the dividend was worth more than NZ$4,000. That would be NZ$20,000 to a family of five.

An annual per person distribution of Vector profits, even if only a tiny fraction of the Alaska dividend, would make a dent in the poverty that many Auckland families face. The reduction of poverty in Auckland would be somewhat greater if the profits of Vector, Metrowater and the Ports of Auckland were all distributed to their owners, preferably on a per capita basis.

[1] ie full distribution of money's paid to the AECT

published in the Herald at

Vector Vexation, Scoop 20 Dec 2000

© 2001   Keith Rankin

Rankin File | 2001 titles