Electricity Distributors' Performance from 2008 to 2011
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ISBN no. 978-1-869453-02-2 Project no. 14.20/13107 Public version Electricity distributors’ performance from 2008 to 2011 Date: 29 January 2013 2 Chapter 1 Introduction 4 Helping customers understand how their electricity distributor is performing 4 We have focused on some key areas of performance 4 We use public information to give an overview of distributors’ performance 5 Structure of this report 5 We would like to hear how useful you found this report 5 Chapter 2 Overview of New Zealand’s electricity industry 6 The main parts of the electricity industry supply chain 6 Key features of the New Zealand electricity distribution sector 7 Chapter 3 Our role in the electricity industry 11 How we regulate electricity distributors in New Zealand 11 Chapter 4 Overview of industry performance 14 Prices, revenue and demand 16 How reliable is electricity distribution in New Zealand? 25 Expenditure 28 3 On 5 February 2013 we made some corrections to the paper. The table below summarises the changes. Distributor Change Buller corrected information in Table 7.1 Electricity Invercargill corrected information in Table 13.1; replaced $7.5m with $1m in commentary under Figure 13.3 MainPower corrected information in Table 16.1 Orion corrected information in Table 22.1; replaced ‘Electra’ with ‘Orion’ in notes to Figures 22.13 and 22.14 OtagoNet corrected information in Table 23.1 Powerco corrected information in Table 24.1 The Power Company corrected information in Table 25.1 Vector corrected information in Table 29.1; added note under Figure 29.1; corrected Figure 29.17 WEL Networks corrected information in Table 31.1 Wellington corrected wording above Figure 32.17 Westpower corrected information in Table 33.1 Introduction 4 Chapter 1 Introduction Helping customers understand how their electricity distributor is performing We have written this report primarily for customers of electricity distribution services, by which we mean people who have, and pay for, a connection to an electricity distribution network.1 This includes both households and businesses. We hope that the information presented here will also be of interest and use to other stakeholders. We have focused on some key areas of performance We have not attempted to provide answers on all areas of performance in this initial report. Instead, we have provided an overview of performance across the areas we understand are of most interest to customers:2 Prices and revenue. Revenue is the income that electricity distributors receive from customers for providing electricity distribution services. Most revenue comes from line charges. We discuss prices and revenues on pages 16 to 23.3 Reliability. The quality experienced by customers has many aspects. Quality may relate to the reliability of the service, voltage stability, the quantity of electricity distributed, any contact with the customer, and the overall customer experience. Reliability of the service is usually considered to be one of the most important dimensions of quality for electricity, and is the one that we focus on in this report. We discuss reliability on pages 25 to 27. Expenditure. Electricity distributors incur costs from providing electricity distribution services. This expenditure consists of operating expenditure and capital expenditure. The amount of expenditure required to provide a service depends on a wide range of factors, including the age of the network, geography, the configuration of the network, the efficiency of expenditure. We discuss expenditure on pages 28 to 34. Another important measure of a distributor’s performance is its profitability. We have included information on distributors’ regulatory profit in this report, but not an assessment of this. An assessment of profitability involves comparing profits earned over a period to a benchmark rate of return. A meaningful assessment is not possible based on the information currently publicly available. We will assess profitability in future reports. 1 The legislation that applies to electricity distributors under Part 4 of the Commerce Act 1986 (Part 4) refers to ‘consumers’. In this report we refer to ‘customers’ instead. 2 Last year we sought feedback from our stakeholders, through a survey, about how we are perceived and what you are interested in. Respondents were most interested in price, quality, and costs and cost efficiency, with profitability ranked fourth. 3 Most distributors do not bill customers directly. Instead they bill electricity retailers, who pass the cost on in customers’ electricity bills. Electricity retailers may choose to structure final prices differently from distributors. For this reason the prices on your electricity bill may differ from the average prices presented in this report. 5 Introduction We use public information to give an overview of distributors’ performance This report presents public information that is relevant to understanding the performance of electricity distributors—primarily information that electricity distributors are required to publicly disclose under regulations that we set. The information we have used is for the period between 2008 and 2011.4 As this report is based on information that was compiled and disclosed by each individual distributor, we gave each distributor an opportunity to verify its information. We have relied on the distributors to ensure that the information about their individual businesses is correct. In summarising the available data, we have focused on major trends and comparisons. In some places we have noted possible reasons for observed differences between distributors and for a distributor over time. We cannot fully assess the reasons for observed performance based on the information that is currently available. We also need to take care in drawing conclusions as some of the information has not been adjusted for unusual events. At the end of 2012 we determined new information requirements for electricity distributors.5 These new requirements should provide the information we, and other interested persons, need to better understand distributors’ performance in a number of areas, including profitability. We therefore expect to provide fuller assessments of distributors’ performance in the future. Structure of this report We have structured this report as follows: Chapters 2 and 3 give an overview of the New Zealand electricity industry, the role of electricity distributors, and the role of the Commerce Commission. Chapter 4 provides a summary of performance across the electricity distribution sector as a whole from 2008 to 2011. It also discusses what we mean by revenue, prices, reliability, and expenditure. We then present an overview of the performance of each electricity distributor. We would like to hear how useful you found this report We welcome your feedback on how useful you found this report and what else we can do to help you better understand the performance of electricity distributors. Your feedback will help us to improve reports like this in the future. Please send your feedback to [email protected] with “Electricity distributors’ performance” in the subject line. 4 The information disclosed is available on our website www.comcom.govt.nz and on electricity distributors’ websites. 5 Refer to the Commission’s website at www.comcom.govt.nz/current-electricity-information-disclosure- requirements/ Overview of the electricity industry 6 Chapter 2 Overview of New Zealand’s electricity industry This chapter provides an overview of: the main parts of the electricity industry supply chain the key features of the New Zealand electricity distribution sector The main parts of the electricity industry supply chain Getting electricity to your home or business involves several steps. Electricity is first generated from a variety of sources, before being transmitted across the national transmission grid, distributed down the power lines, and finally delivered to your house. More than 50 businesses across New Zealand play their part in that process. Figure 2.1: The main parts of the electricity industry supply chain and their role Generation Transmission Distribution Retail Generators produce Transpower runs the national Electricity distributors transport Retailers buy wholesale electricity from renewable grid, transporting high voltage electricity from the electricity from generators and sources such as hydro, electricity from the generators transmission grid to homes and then sell it to customers. geothermal and wind, as to distribution networks. It also businesses. Distributors may well as non-renewable transports electricity directly to choose to bill customers sources such as fossil fuels some large industrial directly, but most bill electricity like gas and coal. companies. retailers, who pass the cost on. To get electricity to customers We regulate electricity retailers contract with the distributors under the Part 4 of transmission and distribution Commerce Act. networks. Customers’ bills Generators contract with We regulate Transpower under Part 4 of the Commerce Act. usually include the cost of Transpower to deliver transmission and distribution. electricity to retailers or large industrial companies. 7 Overview of the electricity industry Key features of the New Zealand electricity distribution sector There are 29 electricity distributors There are currently 29 electricity distributors operating in New Zealand. Each distributor covers a separate geographic area. Table 2.1 provides some key statistics for the electricity distribution sector from 2008 to 2011. Table 2.1: Key statistics for the New Zealand electricity distribution sector 2008 2009 2010 2011 Trend growth Regulatory revenue ($b) 2.0 2.0 2.1 2.1 1.9% Regulatory asset base ($b) 8.1 8.3 8.5 9.0 3.5% Operating expenditure ($b) 0.43 0.43 0.45 0.45 2.1% Capital expenditure ($b) 0.54 0.58 0.54 0.59 1.6% Regulatory profit ($b) 0.93 0.91 0.82 0.99 0.9% Electricity delivered (GWh) 30,543 29,901 31,041 30,946 0.8% Maximum system demand (MW) 6,133 6,122 6,320 6,253 0.9% System length (km) 145,011 147,253 148,768 149,570 1.0% Number of customers (million) 1.95 1.98 2.00 2.01 1.0% Note: The dollar figures in Table 2.1 have been adjusted for inflation.