20 February 2013
Jeff Weir, Senior Tariff Analyst, HeavyDutyDecisions.co.nz
VECTOR BUSINESS TARIFF CHANGES CREATES WINNERS AND LOSERS.
A Commercial Tariff Consultant says a major tariff rebalancing across Vector’s Auckland and Northern electricity distribution networks will see some large businesses potentially paying thousands more, while others could potentially save thousands.
Jeff Weir of tariff analysis company HeavyDutyDecisions.co.nz was referring to Vector’s just-released pricing disclosures for Vector’s Auckland electricity network – covering Auckland Central, Waiheke Island, Manukau and parts of Papakura – and Vector’s Northern network – covering North Shore, Waitakere and Rodney.
“In general, the changes more fairly share the costs of maintaining Vector’s networks across different business groups. But the sheer number of different tariffs that apply to some customer groups may have many scratching their heads,” said Mr Weir. Larger connections will see up to eight separate charges for delivery of their electricity itemised on their energy bills.
And the sheer increase in one tariff in particular – Vector’s Power Factor charge – will “raise eyebrows as well as power prices”. From 1st April, Vector are increasing their Power Factor tariff by around 6,500 percent.
“While that increase is off a very low base, it’s fair to say that the sheer size of this increase will come as a surprise to many businesses,” said Mr Weir.
Power Factor is a measure of how effectively businesses convert the electrical current delivered by lines companies into useful output power. “In layman’s terms, the worse your power factor, the harder that Vector needs to work to push electricity through your site. So Vector charge you a penalty if your power factor drops beneath the limit that Vector deems acceptable.”
Around 1000 large businesses across Vector’s networks are already subject to a modest Power Factor tariff. As from 1 April 2013, these sites as well as a further 1,700 connections will be subject to the tariff at this greatly increased rate.
“Vector warned last year that an unspecified increase in this charge was on the way, but they probably could have done more to signal the likely quantum in advance…a few weeks’ notice does not give businesses a heck of a lot of time to get their heads around this.”
Mr Weir says that increases in tariff changes on Vectors’ Auckland network will probably be fairly modest for most businesses. But around 340 medium to large sites on Vector’s Northern network will be particularly impacted by changes, both positive and negative.
“In addition to the Power Factor increase, these 340 connections also face a 19% increase in their Demand Charge, and a 10% increase in their Capacity Charge on average. So that’s a potential triple-whammy. However, there’s some good news too: these 340 customers will see their Fixed Daily Charge decrease by an average $3,400 per year under this rebalancing.”
Whether these sites will come out better off overall will depends largely on what kind of equipment businesses operate, and how smart they are about managing their energy use around Vector’s tariffs, says Mr Weir.
“Many affected businesses on both networks could mitigate their exposure to some of these tariffs, or even avoid them altogether. For instance, businesses pay no Peak Demand or Power Factor charges on any electricity they use before 8am or after 10pm. So instead of firing up your air conditioning or industrial furnaces at 8am when lines charges and underlying energy rates are high, fire them up a bit earlier, when your total delivered electricity cost is much, much cheaper by comparison.”
Even if sites can’t easily shift load to cheaper periods, installing power factor correction equipment could be a great investment if poor power factor is an issue. “This might also help decrease their exposure to Capacity and Demand charges as well.”
Mr Weir says that while the new tariffs are complicated, they seem a progressive step towards rewarding businesses for making the right decisions about their energy use.
“And the rebalancing was probably long overdue – some businesses on Vector’s Northern network in particular seemed to be paying a lot more than others simply because they happened to be in a certain customer group. This rebalancing helps address that”.
Jeff Weir, Senior Tariff Analyst, HeavyDutyDecisions.co.nz
Mobile: 021 0252 3031
Landline: 0508 DECISIONS (0508 332 474)
- Lines charges are what you pay to your local lines company to deliver your electricity from the national grid and across their network to your site, and typically account for around 35 – 45% of many electricity bills.
- Line companies generally change their prices on the 1st of April each year. While they have to work within Commerce Commission guidelines in terms of how much profit they make, how they divvy up their charges amongst different customer groups is largely up to them. Consequently, often they’ll make changes to their tariffs that radically alter the economics of one customer group compared to another.
- Lines companies put their customers into different categories – called load groups – depending on how much electrical load a site is likely to use. Each load group has a different tariff – and these tariffs can be radically different in terms of end cost.
- The particular load group your lines company puts you in is often determined by the size of the main fuse on your switchboard. But the appropriateness of that fuse size might not have been checked in years, if ever. Consequently, many businesses have a far higher capacity fuse than they actually require.
- Lines charges for domestic consumers and smaller businesses are usually bundled in to the rates your electricity retailer quotes you. Lines charges for larger customers with Time-of-Use metering are usually itemised separately on your energy invoice by your energy retailer.
- Vector operates two electrcitiy networks -
- Vector’s Auckland electricity network covers Auckland Central, Waiheke Island, Manukau and parts of Papakura. Lines charges on this network are subject to a 10% prompt payment discount.
- Vector’s Northern network covers North Shore, Waitakere and Rodney. Lines charges on this network are NOT subject to a 10% prompt payment discount.
- Vector’s latest pricing documents and disclosures can be accessed at: