Vector changes approach to loss rental rebates

Industry Updates
Loss rental rebates (LRRs) are the difference between the price and quantity of electricity generated and the price and quantity of electricity received, creating a difference in cost, which is only known later on. LRRs are allocated to electricity distributors around the country including Vector in Auckland.

This is complicated so stick with us as we try to explain it.

Vector’s electricity lines business is regulated by the Commerce Commission which decides how much we can earn over a five-year period. In simple terms, revenue not recovered in one year can be recovered in later years.

Given the impact of Covid-19 and lower use of electricity in Auckland, we are changing our recent approach of distributing LRRs and in the coming year will instead use them to help minimise any future prices increases that might occur. We want to smooth the impact of future price increases for customers by using loss rental rebates effectively as a ‘shock absorber’.

It is important to note that customers will not be disadvantaged by this. In one way or another, these funds will be used for consumers – either through limiting price increases or distributed directly to our customers.

Frequently asked questions

Does this mean that Vector will stop paying out loss rental rebates for the next five years?
The change in our approach means that we will use loss rental rebates to offset future increases to electricity line charges, and any excess can be returned to consumers later. We will inform customers when any excess is to be returned to them.
 
Does this mean we won’t have any increases on our power bills?
No. Vector’s charges are only part of the bill you receive from your retailer.  The bill you receive from your retailer includes charges from Transpower, your distribution company such as Vector and your retailer. An increase in your power bill could be a result of an increase in any of these charges.
 
Given there is some economic uncertainty as a result of Covid-19, shouldn’t you be paying out the loss rental rebates now?
We recognise that this may be a difficult time for some households economically.  We are changing our approach to use loss rental rebates to offset future customer prices increases. Customers will not be disadvantaged by this policy change as it will smooth the impact of future price increases and any excess will be returned to them later.
 
How are loss rental rebates calculated?
Loss rental rebates are the difference between the price and quantity of electricity generated and the price and quantity of electricity received, creating a difference in cost, which is only known later on. It is a common outcome that is due to the way the industry economics are structured. 
Is this linked to the Entrust dividend?
No, this is quite separate. The Entrust website has information about the dividend payment here.
 
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