3. Significant transactions and events
Significant transactions and events that have impacted the financial year ended 30 June 2023:
Discontinued operations
In December 2022, Vector announced an agreement for the sale of 50% interest in its New Zealand and Australian metering business (Vector metering), to investment vehicles managed and advised by QIC Private Capital Pty Limited (QIC). The sale completed on 30 June 2023. Refer to note 5 for further details and required disclosures relating to the sale. Until 31 March 2023, Vector retained loss rental rebates (LRRs) to offset the impact of any electricity volume reductions on revenue and mitigate potential future price increases for consumers. Any excess LRRs not required to mitigate such revenue shortfalls will be returned to customers at a later date. Vector distributed loss rental rebates of $17.9 million to customers on the Vector electricity network in September 2022 at $30 per customer, representing excess LRRs not required to partially mitigate electricity distribution price increases applying from 1 April 2022. A provision for distribution to customers of $19.0 million is recognised at 30 June 2023 (30 June 2022: $18.0 million) provides for an expected distribution level of $30 per customer on the Vector electricity network. This approach is consistent with the Board’s view that LRRs should ultimately benefit electricity customers. In the year ended 30 June 2023, Vector received $27.7 million of LRRs from Transpower (year ended 30 June 2022: $26.5 million), $8.8 million of which has been retained and recognised in the profit or loss (30 June 2022: $8.7 million). The new transmission pricing methodology (TCM) came into force on 1 April 2023. Under the new TCM, Transpower’s existing method for allocating LRRs has become obsolete, and distributors are required to pass through settlement residue to their customers, being retailers or directly billed customers. Therefore, post 1 April 2023, Vector is not able to apply LRRs to offset volume shortfalls, and September 2023 will be the last foreseeable distribution of LRRs to end users. On 14 June 2023, the Commerce Commission (the Commission) released its draft report on its review of Input Methodologies. Their report proposed a reduction in the weighted average cost of capital (WACC) percentile for gas distribution businesses from 67% to 50% which would result in a decrease in future revenues for Vector’s gas distribution business. Vector has lodged submissions to the Commerce Commission that support the maintenance of the current WACC percentile. The Commission will consider these and other submissions and publish its final decision on Input Methodologies in December 2023. In December 2022, Vector repaid $250.5 million (US $182.0 million) of USD denominated senior notes. During the year ended 30 June 2023, the group drew down $539.0 million, and repaid $1,175.0 million of bank facilities for a net repayment of $636.0 million (year ended 30 June 2022: drew down a net of $126.0 million). Refer to note 21 for more details on borrowings.
Loss rental rebates
Gas Distribution Input Methodologies
Debt programme
Regulatory quality thresholds During the year Vector and the Commission have settled the combined penalty relating to SAIDI quality threshold breaches by the electricity distribution network for the regulatory years ended 31 March 2017, 2018, 2019 and 2020. A penalty of $1.2 million was paid on 31 May 2023 and settles the periods in question.
Vector was in compliance with the SAIDI quality thresholds for the years ended 31 March 2021 and 31 March 2022. For the regulatory year to 31 March 2023, we were in breach of SAIDI due to the network outages relating to the Auckland floods and cyclone Gabrielle in January and February 2023 respectively. Vector and other electricity distribution businesses are in discussions with the Commission regarding treatment of these exceptional events from a regulatory perspective. We were tracking well below the regulatory SAIDI limits up to the 27 January 2023 floods. Our view is that given the exceptional nature of the flood and cyclone events there is sufficient uncertainty as to whether the Commission will take any action in relation to the 2023 technical breach of SAIDI, that the criteria for raising a provision has not been met.
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Vector Annual Report 2023
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