The Commerce Commission is seeking views on its provisional view not to reopen Vector’s reliability standards that apply to its electricity network. Vector made the request on the basis that it had changed its health and safety policies so that maintenance and repairs could in most cases only be undertaken on de-energised lines, which has increased the frequency and length of outages on its network.

Deputy Chair Sue Begg said the Commission acknowledged that changes to health and safety legislation that took effect in April 2016, including a significant increase in penalties for breaches, had seen some lines companies make changes to how they physically maintain and repair their networks.

“We agree that lines companies must apply the health and safety practices that they consider most appropriate to safeguard their employees and the public, but our provisional view is that the change in legislation did not itself necessitate a change in these practices. While the text describing employers’ health and safety responsibilities was amended between the 1992 and 2015 Acts, our provisional view is that the underlying requirements did not significantly change. For that reason, we currently do not consider that the legislative change meets the strict test in our rules for when lines companies’ reliability standards can be adjusted,” Ms Begg said.

“However, we accept that lines companies should not be unfairly penalised for implementing changes they consider are necessary to meet their health and safety obligations. If a company were to exceed the reliability standards we have set for outages on its network purely because it had legitimately and efficiently de-energised lines for safety reasons, then it is unlikely enforcement action would be warranted. We think it is important to provide lines companies with that reassurance.”

The Commission is seeking views on its response to Vector’s request and on how changes to health and safety practices should be accounted for in the monitoring of the existing reliability standards. This matter will also be addressed in setting the reliability standards that will apply from April 2020.

Further information can be found on the Commission’s website.

Background

Vector is subject to price-quality regulation that sets a limit on the number and duration of outages it can incur 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 distributors in New Zealand. The current DPP was set in 2015 and runs for the 5 year period through to 2020. The Commission has recently started the process for setting the next DPP that will apply form April 2020.

The DPP includes a quality standard based on the number and duration of interruptions on a distributor’s network. This ensures that businesses do not have incentives to reduce quality to maximise profits under their price-quality path.

Reopening a DPP

Generally, decisions on price limits and quality standards are not ‘reopened’ in the 5 years after they are set. However, where there is a significant unforeseen 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 reopener, a business must establish:

• a new or changed regulatory or legislative requirement has taken effect,
• that this obligation was not provided for in setting the DPP, and
• that this new or changed obligation has necessitated the business to incur costs greater than 1% of its annual revenue.

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