Vector penalised $3.5 million for excessive level of outages

Auckland electricity lines company Vector Limited has been ordered by the Auckland High Court to pay a penalty of $3.575 million for breaching its network quality standard through an excessive level of power outages.

Vector serves more than half a million homes and businesses in the greater Auckland region and as a regulated business must comply with Commerce Commission regulations regarding the maximum revenue it can collect and the minimum standards of quality it must deliver. Quality is measured in the duration and frequency of power outages.

Commission deputy chair Sue Begg said Vector failed to adhere to good industry practice in some aspects of its network management, which resulted in it breaching the Commission’s regulations on quality standards in the 2015 and 2016 financial years.

“Auckland consumers have a right to expect a good quality of service from their lines company and Vector failed to deliver it,” Ms Begg said.

“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. The court has found that Vector’s governance of compliance with the quality standard did not meet good industry practice. Vector underestimated the risks it faced and did not meet best practice in managing vegetation or the life-cycle of certain aging assets. We expect better management decisions going forward, as do its customers.”

“We are aware of media reports asserting these proceedings stemmed from changes to Vector’s ‘live lines’ safety policies, which is incorrect. 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.”

In her judgment released today, Justice Duffy noted: “These were serious contraventions. 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. Vector is the largest electricity distribution business in New Zealand, having at least 540,000 or more customers at the relevant time. Those customers are likely to have suffered losses like those detailed [earlier in the judgment]. A significant penalty must be imposed to act as an effective deterrent to Vector and other distributors.”

The penalty imposed by the court was discounted by 35% for mitigating factors, including Vector agreeing not to contest the proceedings.

A copy of the judgment will be available shortly on the Commission’s website.

Vector has now exceeded the annual limit set by the Commission for duration of outages for five years in a row. In addition to the breaches covered by today’s penalty, Vector also breached its quality standard in 2017 and 2018. The Commission is currently investigating those further breaches and expects to make a decision about enforcement action later this year.

Background

The current price-quality regulatory regime took effect in 2009. Vector is the first lines company to incur a financial penalty under section 87(1) of the Commerce Act for breaching its quality standard. A number of electricity lines companies have previously received warnings or signed settlement agreements for breaching their price-quality paths. Details of these can be found on our website.

To contravene a quality standard, a lines company must exceed its annual reliability assessment in two out of three years. 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. Vector exceeded its annual reliability assessment for the years ending 31 March 2014, 2015, 2016, 2017 and 2018.

Once a penalty has been imposed, section 87A of the Commerce Act allows any person who has suffered loss or damage as a result of the breach to bring a further claim for compensation against Vector within 12 months of this penalty decision from the High Court.

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