Vector fined $3.6 mln in industry first
By Gavin Evans
March 22 (BusinessDesk) - Vector, the country’s biggest electricity distributor, has been fined almost $3.6 million for breaching its reliability standards in the 2015 and 2016 financial years.
The firm, which also operates gas pipelines and telecommunication services in Auckland, could have faced total fines of $10 million and agreed a settlement with the Commerce Commission in October. The fine is the first imposed since the regime took effect in 2009 and was set by High Court Justice Ailsa Duffy today.
“These were serious contraventions,” she said. “The size of the contravening party is an important factor in determining the seriousness of the contraventions. This is because any penalty must take account of both the size and resources of the party, and the effect on its customers,” Justice Duffy said in an extract of her judgment provided by the Commerce Commission.
“A significant penalty must be imposed to act as an effective deterrent to Vector and other distributors.”
Vector shares rose 0.6 percent to a $3.58, having earlier reached a record $3.59. The stock has gained 6.2 percent the past year.
Vector supplies electricity to more than 567,000 homes and businesses and has now breached its reliability standards for five years running.
It signalled to investors in August that it expected any penalty would be significantly less than the maximum available to the commission of $5 million for each breach.
Power distributors are required to keep both the total duration of outages on their networks and their frequency below targets set by the commission. In the 2015 and 2016 regulatory years, Vector's outages exceeded the duration target by 51 minutes and 13 minutes respectively using the commission’s SAIDI index - a measure based on system-wide supply loss.
Massive storms in the region last April cut power to more than 150,000 homes on Vector’s network and pushed its SAIDI minutes for 2018 to 226 – twice the firm’s limit.
In today’s judgment, the court says Vector acknowledged that there had been a “material deterioration” in the quality of its service between 2014 and 2016.
While many of the firm’s practices for monitoring and managing its assets were good, the judgment notes the company did not have good processes for then mitigating foreseeable risks, such as those from ageing assets and increasing traffic congestion.
Its vegetation management did not meet good industry practice, and the company did nothing to mitigate the SAIDI impact from its shift away from live-line work in 2012. Increased wind events were a factor in the 2015 breaches.
Justice Duffy set a $1.95 million penalty for 2015, representing a 35 percent discount from a starting point of $3 million. Mitigating factors included Vector’s admission of liability, its cooperation with the commission and the information it voluntarily provided.
She set a $1.625 million penalty for 2016, from a starting point of $2.5 million with the same discount for mitigation.
Like many distributors, Vector has been pushing hard for tighter controls on trees growing near power lines. A government review of the existing regulations, signalled in 2015, may get underway this year.
Vector has also been spending more on mobile back-up generation to reduce the length of outages, particularly since opting to carry out less maintenance on live lines due to safety concerns.
Vector has attributed much of the increase in its 2017 and 2018 breaches to its shift to de-energised work practices. In December, it lost its bid to have its reliability standards relaxed to reflect that change.
Commerce Commission deputy chair Sue Begg made the point that the proceedings the regulator took against Vector had not stemmed from the change in Vector’s ‘live lines’ safety policies.
“Vector was in breach of its quality standard regardless of that policy change and we took these proceedings because of the concerns we had with Vector’s overall decision-making and management practices,” she said in a statement.
“Given the impact electricity outages have on consumers and businesses, it is crucial that lines companies have the systems in place to identify and manage the risks present in their networks.
“Vector underestimated the risks it faced and did not meet best practice in managing vegetation or the life-cycle of certain ageing assets. We expect better management decisions going forward, as do its customers.”
Proceedings the commission began against Dunedin-based Aurora Energy in September are continuing.