Vector to return $13.9m to Auckland consumers after tariff change breaches revenue cap

Vector will return $13.9 million to Auckland electricity customers after a change to the way it set two tariffs in 2013 saw it breach its regulated revenue cap in the following two years.

The Auckland-based electricity, gas and telecommunications lines company cut a deal with the Commerce Commission where it will set its prices for the relevant customers below the maximum it can charge on the regulated lines, reducing 2019 revenue by $4.6 million and 2020 revenue by $9.3 million.

Vector inadvertently went beyond its allowable returns when it restructured prices for residential customers and left it to electricity retailers to handle the switch on the assumption that competition in the retail market would ensure virtually all customers would change to the appropriate rate from the first day. Instead, about 28 percent of Auckland households hadn't switched over at the end of the first year and were paying more than they needed to.

"While Vector could not predict consumer switching with complete accuracy, its working assumption was unreasonable and led to a large number of households overpaying for their electricity," commission deputy chair Sue Begg said in a statement. "Vector's repayment takes the form of holding residential prices flat for the next two years, which has the effect of consumers paying less and Vector earning less revenue than would be allowed under its price path."

In February, Vector reported a 7 percent increase in first-half profit to $107 million and affirmed annual guidance for adjusted earnings before interest, tax, depreciation and amortisation would be broadly in line with the 2016 result of $473 million. The company has been looking for new revenue streams outside its regulated electricity and gas distribution business, and diversifying into battery storage technology, home ventilation, and solar power.

The commission agreed to the settlement to avoid expensive and time-consuming litigation, and because Vector dealt with the regulator in "a constructive manner" and identified the breaches in its compliance statements for the 2014 and 2015 periods.

Vector shares fell 1.5 percent to $3.33, having gained 4.3 percent so far this year.

(BusinessDesk)