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Commission warns Wellington Electricity over quality standards

1 September 2016

The Commerce Commission has issued a warning letter to Wellington Electricity Lines Limited (WELL) after it failed to comply with minimum standards for network reliability in 2013 and 2014.

The Commission sets quality standards to encourage electricity distributors to maintain and improve the reliability of the service delivered to consumers. The quality standards limit the maximum number and length of power outages that the average consumer should experience in a year.

Deputy Chair Sue Begg said the Commission’s investigation found that while WELL had breached its quality standard there was no serious fault on its part.

“Weather events played a significant part in WELL failing to meet the standards we have set, but an independent engineering report also identified some specific steps it could take to improve the reliability performance of its network,” Ms Begg said.

“WELL has cooperated fully with our investigation. It has already acted on a number of the report’s recommendations and has complied with the quality standards in 2015 and 2016. The warning letter puts WELL on notice that we will take the breach into account in considering enforcement action for any future breaches.”

The warning letter, as well as the independent engineering report and WELL’s response to the report, can be viewed in the electricity section of our website.

Background

WELL’s distribution network supplies the cities and council jurisdictions of Wellington, Porirua, Lower Hutt and Upper Hutt.

Part 4 of the Commerce Act 1986 provides that all suppliers of electricity distribution services are subject to default or customised price-quality regulation unless they are exempt. Exemptions apply for consumer-owned electricity distribution businesses. WELL is not exempt and accordingly is subject to a price-quality path determination that sets price and quality requirements that must be complied with.

As required under s 53M(1) of the Commerce Act we set quality standards for WELL. We based the default quality standards for all non-exempt distribution businesses on their historical levels of reliability. Therefore, non-compliance with quality standards generally represents a material deterioration in the business’ own underlying reliability, and not necessarily worse reliability than other distribution businesses.

WELL is required to provide the Commission with a self-assessment against the quality standards following each annual assessment period. WELL reported non-compliance with the quality standards in the 2013 and 2014 assessment periods, which ran from 1 April 2012 to 31 March 2013 and 1 April 2013 to 31 March 2014 respectively.

The quality standards for WELL requires that it should not exceed the annual limit for average frequency or duration of outages in any two years out of a three year period, where the annual limit is based on WELL’s historic level of reliability. WELL exceeded its average interruption duration annual limit in 2012, 2013, and 2014, and its average interruption frequency annual limit in 2012 and 2014. Consequently, WELL did not comply with its quality standards in 2013 or 2014.

Further information on the level of reliability of all twenty nine New Zealand electricity distributors is provided in chapters 5 and 6 of our recent report “Profitability of Electricity Distributors Following First Adjustments to Revenue Limits”, which is available in the electricity section of our website.