Eastland Network rebound follows three bad years

Matt Todd

AFTER it was shown to be one of New Zealand’s worst-performing lines companies up to last year, Gisborne-based Eastland Network has this year bounced back to put in its best-ever performance.

A new Commerce Commission report into the profitability of electricity distribution companies found Network Eastland was one of five lines companies that breached price-quality requirements through “repeated” poor performance in successive years (2011 and 2012 in Eastland Networks’ case).

But more recently, in the year to March 2016, Eastland Network returned the best performance on record. The commission’s report showed that over a three-year period to 2015, Eastland Network was one of the least-profitable lines networks in New Zealand, with real returns 1.5 percentage points below those expected.

Over the same period customers on the Eastland network experienced, on average, more than three disruptions a year, making it the third most unreliable network in the country.

The report said it identified all five distributors as having a “material deterioration” in network reliability between April 1, 2010 and March 31, 2015.

“These five distributors were therefore found to be non-compliant with our quality standards. Each of the five distributors was identified as having a material deterioration because they exceeded the reliability limit for SAIDI (System Average Interruption Duration Index) and/or SAIFI (System Average Interruption Frequency Index) in two out of three consecutive years.

“The ‘two out of three years’ rule separated distributors that performed poorly in an individual year from repeated poor performers.

Warning letters issued“We have already issued warning letters to Aurora, Eastland and Electricity Invercargill in response to those instances of non-compliance.

“Our engineering advisers raised concerns about Eastland and Aurora’s asset management (but not Electricity Invercargill’s). Further breaches of quality standards by Eastland or Aurora might therefore lead to stronger enforcement responses in the future.”

The warning was issued in June 2014 and it marked the second time since 2002 that Eastland Network had been issued a warning for a breach of the Commerce Act.

However, it also said Eastland Network was one of six lines companies whose expected returns for the period were more than one percentage point below expectations. These companies were Horizon Energy (-1.06), Aurora Energy (-1.14), Eastland (-1.5), Top Energy (-1.87), Centralines (-2.21) and The Lines Company (-2.33).

The Commerce Commission said the primary variances behind these returns included intentionally pricing beneath the limit and higher-than-forecast operating or capital expenditure.

In Eastland Network’s case it was due to higher-than-forecast operating expenditure and lower-than-forecast billed quantities (-0.87 and -0.41 percentage points respectively).

Eastland Group chief executive Matt Todd said the report only took in the period up to March 2015.

“Eastland Network in the year ended March 31, 2016 has had the best network performance on record.”

East Coast and Wairoa distributionEastland Network distributes electricity to about 25,000 individual connections across the East Coast and Wairoa. Mr Todd said weather and other unplanned and uncontrollable events could have a big impact — positive and negative — on network performance.

Looking at single year or short-run averages could be misleading, he said.

The network’s 10-year management plan was reviewed annually, and he did not feel there were any gaps in the process.

“While it is approved by the board, it is written and executed by the Eastland Network team. I don’t believe there are any gaps in this process.

“One of the challenges is the need to find a balance between customers’ desire to have their quality of supply improved (fewer outages) and the same customers’ desire to keep price increases to a minimum.”

However, he cautioned that there had to be a balance between reliability and costs for consumers.

“To make the network significantly more reliable would increase what are already high electricity distribution prices.

“Eastland Network has low customer density (just 7 customers per kilometre of network). This means there is a lot of asset tied up per customer to deliver electricity, which leads to higher prices per customer.”