Published 10 October 2018, updated 11 October 2018:
The Commerce Commission said it would file civil proceedings in the Auckland High Court on Wednesday seeking financial penalties against electricity lines company Vector Ltd for breaching its network quality standards.
Vector said it was at fault – but believed the regime “no longer reflects reality” (see its response below).
Vector serves over half a million homes & businesses in the greater Auckland region and, as a regulated business, must comply with commission regulations regarding the maximum revenue it can collect and the minimum standards of quality it must deliver. Quality is measured in the duration & frequency of power outages.
The commission said: “As part of its compliance with the regulations, Vector reported that it had breached its quality standards in both the 2015 & 2016 financial years. The commission will file proceedings under the Commerce Act alleging Vector failed to adhere to good industry practice in some aspects of its network management, which resulted in increased outages over that period.
In particular, the commission considers Vector did not meet good industry practice with regard to aspects of its:
- overall governance of compliance with the quality standards – for example, underestimating the growing risk of non-compliance, and failing to have methods to predict & plan for the effects of increased traffic congestion
- asset lifecycle management practices
- approach to managing reliability, such as a consolidated & documented strategic reliability management plan, which would have helped to identify key issues & solution options
- vegetation management (cutting trees to avoid collisions with power lines), and
- management & supervision of arrangements with the field service providers whose crews undertake maintenance & fix faults on Vector’s network.
The commission said Vector had co-operated with its investigation and confirmed it wouldn’t contest the proceedings. It has also reported further breaches of its quality standards for 2017 & 2018 that are subject to a separate investigation.
The maximum financial penalty that can be imposed on an electricity lines business for a breach of its price-quality path is $5 million per act or omission. If the court imposes a penalty, section 87A of the Commerce Act allows the commission, or any person who has suffered loss or damage as a result of the breach, to bring a further claim for compensation against the electricity lines company within 12 months of the penalty.
Vector admits erring, but says regime “no longer reflects reality”
Vector acknowledged yesterday it was agreeing to a settlement with the Commerce Commission, following breaches of an electricity network quality standard in 2015 & 2016.
The company said details of the settlement would be heard at a penalty hearing to take place “in due course”.
The company’s chief network officer, Andre Botha, added that Vector believed the quality control regime “no longer reflects reality”.
Like other lines companies, Vector’s prices and service quality are regulated by the Commission using a price-quality path, which means Vector is required to meet certain network quality standards, relative to its own historical performance, and is limited in the amount of revenue it can earn.
Vector’s chief network officer, Andre Botha, said one of the Commerce Commission’s quality standards was the average duration in minutes of network interruptions. The commission found Vector breached this quality standard by 51 minutes in the 2015 regulatory year and 13 minutes in the 2016 regulatory year.
“Vector has noted to the commission the circumstances that it believes contributed to its breach of the service quality standards in 2015 & 2016. These conditions included increased storm frequency & other weather-related impacts, increases in Auckland’s traffic congestion, which have slowed travel times and can prevent maintenance crews from reaching network faults in a timely fashion, and Vector’s decision to prioritise safety of its people by introducing a best-practice policy to avoid working on live lines wherever possible, which can lead to extended outages.
“We understand the disruption these breaches have caused for some Aucklanders and we have been working hard on a range of measures to reduce the impact. However, we also believe the existing regime for quality control no longer reflects the reality of the changed operating environment, particularly in Auckland, and meeting these legacy quality standards will remain a significant challenge for ourselves & others in the industry.
“It is pleasing that we have been able to table these concerns with the Commerce Commission directly and we will continue to work constructively with them to determine new quality standards that will take effect on 1 April 2020 following the next regulatory reset process.”
Attribution: Commission & Vector releases.