Commission declines Vector’s request to relax reliability standards
Published13 Dec 2018
The Commerce Commission has declined Vector’s request to relax the reliability standards that apply to its electricity network. Vector claimed that changes to health and safety legislation required it to change its policies so that network maintenance and repairs could in most cases only be undertaken on de-energised lines. These new policies have increased the duration of outages on Vector’s network.
Deputy Chair Sue Begg said the Commission received submissions disagreeing with its provisional decision in September to deny Vector’s request. However, after considering these, the Commission’s view remains that the Health and Safety at Work Act 2015 did not change the fundamental obligations on Vector that existed previously. Given this, Vector’s request did not meet the strict test in the rules for when lines companies’ reliability standards can be adjusted.
“We agree that lines companies need to apply appropriate health and safety practices and that they should not be unfairly penalised for making changes they consider are necessary to meet their obligations. Where a lines company breaches its reliability standards purely because it is legitimately de-energising lines for safety reasons then we consider that it is unlikely to be in the public interest for us to take enforcement action,” Ms Begg said.
“We have announced court proceedings this year against Vector and Aurora for excessive outages on their networks. In both of those cases there were a range of network management practices that concerned us. However, it is important to emphasise that our decisions to seek court penalties in those cases were not based on the companies’ policies for de-energising of lines for safety reasons.”
The Commission is monitoring the differing health and safety practices across lines companies and will consider how these should be accounted for when setting the new reliability standards that will apply from April 2020.
Further information can be found on the Commission’s website.
Vector is subject to price-quality regulation that sets a limit on the number and duration of outages that can occur on its network each year. If Vector breaches that limit, it can potentially face legal action and penalties under Part 4 of the Commerce Act.
Default Price-Quality Path (DPP) regulation
Price-quality regulation applies to most electricity lines companies in New Zealand. The current DPP was set in 2015 and runs for the 5 year period through to 2020. We have recently started the process for setting the next DPP that will apply from April 2020.
The DPP includes a quality standard (also known as a reliability standard) based on the number and duration of interruptions on a lines company’s network. This ensures that businesses do not have incentives to reduce quality to maximise profits under their price-quality path.
Re-opening a DPP
Generally, decisions on price limits and quality standards are not ‘re-opened’ in the 5 years after they are set. However, where there is a significant unforeseen legislative or regulatory change, there are mechanisms in our input methodologies (upfront rules and processes) to allow us to change the price cap or quality standards in response.
To qualify for such a re-opener, a lines company must establish that:
a new or changed regulatory or legislative requirement has taken effect
this obligation was not provided for in setting the DPP
this new or changed obligation has necessitated the business to incur costs greater than 1% of its annual revenue.