History Reveals True Cost of Power

Vector Network News

History Reveals True Cost of Power

The Commerce Commission on 30 November 2012, released its final decision to reset the default price-quality paths for sixteen electricity distributors. In line with the decision, Vector has to reduce prices by 10% from 1 April 2013. The Commission expects price changes will eventually flow through to consumers as a price decrease on their power bills. Although the Commission has regulated distribution businesses for the past ten years, it does not determine how line charges are passed through to consumers by electricity retailers.

Electricity retailers are, in most cases, free to repackage line charges with their own costs into the prices most customers see on their power bill. The Commerce Commission cannot force reductions in Vector’s line charges to be passed on to consumers and instead relies on competitive pressure between retailers for price changes of this nature to be passed on to customers.

Despite significantly more consumers switching retailers now than in the past, in part due to the ‘what’s my number’ campaign[1], there remains a large number of consumers who don’t understand the different tariffs available. Many retailers also have customers signed up to fixed term contracts, some up to three years.

Line charges typically make up about 40% of a consumer’s power bill. If lines charges drop by 10%, as required by the Commission in Vector’s case, and if retailers pass this on to consumers, then they will receive a reduction of about 4%. Compare this to the different prices charged by retailers operating in the same area. Across the Auckland area[2] the difference between the most expensive and the cheapest retailer is up to 19%[3].

Below is a comparison of changes in distribution prices with changes in retail prices since 1999 when the electricity industry was restructured.

Over the twelve year period covered by the graph, total electricity charges from retailers have increased ahead of increases in line charges from distributors. This is why Vector believes the Commission has got their final decision wrong. They have set allowable rates of return on capital assets too low to ensure that Vector or other monopoly network owners will have the incentive to invest in maintenance and new infrastructure.

"Our priority is to keep the lights on and the gas flowing," says Vector’s Chief Executive, Simon Mackenzie.

"Consumers want and deserve world class energy distribution systems. We need the confidence to invest in our networks and the opportunity to explore energy saving initiatives that will benefit consumers".

Vector is challenging the Commission’s decision through Merits appeal process which is well underway with a decision expected in the first half of this year.

NETWORK SUMMARY for week ending 13 January 2013

ELECTRICITY

The high temperatures continued across the country last week with heat pumps and air conditioners working overtime.

Incidents on the network included five car v poles, three car v pillars, four cable strikes by third party contractors and one overhead line contact (lines clash).

Faults crews were called to isolate electricity for fire crews in Waiwera, Titirangi, Mt Eden and Auckland Central.

High winds on Monday and Tuesday saw faults crews attending six incidents of lines down across the Auckland area. Throughout Monday, crews also attended and repaired a number of faults including a feeder fault in Carrington.

GAS TRANSMISSION AND DISTRIBUTION

It was a busy week for our gas crews.

There were four third party strikes on our network in Hamilton, Frankton, Albany South and Long Bay.

Faults crews were also called out to two separate incidents where the smell of gas could be detected. In Tokoroa, an earlier leak that was isolated in Campbell Street was found to be the cause and in Epsom repairs to a gas pipe were made.

The busy week continued when crews were asked to isolate the gas supply in Epsom North following a fire; and in Mangere South where a vacant hotel showed signs of squatters.

In all cases crews made sites safe and where necessary, carried out repairs.

Please take care around our gas network and call 0508 B4 U WORK (248 967) or 0800 B4 U DIG if outside Auckland.

SHORTS

• Vector owns over 17,737 kilometres of overhead and underground lines in the greater Auckland area, and 12,572 kilometres of gas pipe lines, almost half of which supply gas to Auckland.

• Live Nation is excited to announce the return to New Zealand of multi-platinum, Grammy Award-winning Los Angeles legends, Red Hot Chili Peppers on Monday 14 and Tuesday 15.

• Vector, proud sponsor of the Arena.

Vector owns and manages a unique portfolio which consists of electricity distribution, gas transmission and distribution, electricity and gas metering installations and data management services, natural gas and LPG and fibre optic networks.

Vector is listed on the New Zealand Stock Exchange with ticker symbol VCT. For further information, visit www.vector.co.nz

ENDS

[1] http://www.whatsmynumber.org.nz

[2] Including the Vector owned UnitedNetworks network covering the Northern and Western parts of Auckland

[3] Based on information sourced from Ministry of Business, Innovation and Employment; quarterly survey of domestic electricity prices 15 November 2012 http://www.med.govt.nz/sectors-industries/energy/electricity/prices/electricity-tariff-surveys/quarterly-survey .

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