Auckland’s big electricity network company is being hobbled by regulation and a shambolic ownership, writes Rod Oram, but there is an election looming to help sort that out
“Our vision isn’t linear…it’s bold.” So says Vector, the Auckland electricity lines company, in its recently released annual report.
Is it? Yes. But.
It does know what it must do to help us decarbonise our economy. It is gaining a lot of experience in the relevant technologies at home and abroad. To do more, it is building valuable partnerships here and overseas. And it is majority community-owned, which means citizens share in its economic success.
But Vector is hobbled by two chronic constraints.
*Listen to the audio for this article in the player below*
First, it is severely handicapped by the electricity regulatory regime, the lines part of which is essentially unchanged since it was set up 23 years ago in the Bradford reforms. Reforming those is a vastly complex task, riddled with conflicts of interest, for the entire electricity sector.
Second, the culture of Entrust is rotten to the core and deeply dysfunctional. That matters because the trust owns 75.1 percent of Vector on behalf of the citizens of Auckland, a legacy that goes back to the founding of the publicly owned Auckland Electric Power Board in 1922. Last year it distributed $95 million of Vector dividends to 340,500 customer-residents ($280 each) in the Auckland region.
The electricity consumers of Auckland, identified by their electricity bills, get to choose the body’s five trustees once every three years. But C&R, the current iteration of the Citizens & Ratepayers right-of-centre local political party founded in 1938, has exercised a stranglehold on the trust for years.
Two problems arise: First, C&R is a shambolic organisation. You’ll get a flavour of that from this article — “Auckland’s political soap opera of the year” – which Todd Niall wrote during the most recent Entrust election in 2018.
Second, C&R boots out its best. In the 2018 election it refused to renominate James Carmichael, a C&R member who is an electrical engineer and experienced business person. He had served sensibly on the boards of the trust and Vector. But C&R’s leaders ousted him from both boards because he opposed their efforts to unseat Michael Stiassny when he was chair of Vector.
The next Entrust election is October 29. The list of nominees released on Monday shows Carmichael is running as an independent in the hope of getting back on the board of the trust and then Vector without C&R’s backing.
But the list also shows that Karen Sherry is missing from the C&R slate, after serving on the board of Entrust and its predecessors for 24 years. Like Carmichael, she is highly experienced in the electricity sector and business. She is, for example, on the board of the Government’s Energy Efficiency and Conservation Authority and is Chair of the Energy Trusts of New Zealand, whose members are also lines companies.
Why did C&R biff Sherry from the Vector board and from its own ranks? Most likely, because she knows what she’s talking about and she too opposed C&R’s attack on Stiassny.
What’s wrong with the way C&R members exercise control of Entrust? Well, they believe their role is to deliver Vector dividends. That’s fine. But not if that priority, and the culture behind it, curtails Vector’s growth. The company’s overwhelming priority is to profitably deliver affordable electricity to help decarbonise the economy, which in turn will help us tackle the climate crisis.
Entrust contributes two directors to Vector’s six-person board. But it also has a big say in who the other four are. Entrust’s lack of industry experience, particularly now Sherry is on her way out of the trust, and sub-optimal culture, are a negative influence on Vector.
While delivering dividends to customers is a good goal, it’s a well-paid job for the trustees. And very well paid for the two lucky ones who also join the Vector board. “Entrust is a superannuation scheme for failed National party politicians,” says one person with inside experience of the trust.
Auckland electricity users have the opportunity in October’s postal election to clean out the Entrust board and to give Vector the support it needs to deliver more to them and the local economy. To that end, the list of nominees included a slate of five candidates from a newly formed organisation “More for You, Better for Climate”. More about them later.
Here’s what’s at stake with Vector. It knows the electricity sector worldwide is changing rapidly and radically. From a 20th century model of big power plants, often despatching their electricity inefficiently over long distances for local reticulation over very dumb one-way lines to customers who have limited say and control. To a 21st century model with some legacy units of the above but with lots of small, renewable, local generation and storage capacity distributed over intelligent two-way grids in very customer friendly ways.
We urgently need the future now. Here’s our energy challenge in Auckland, meaning not just electricity but also electricity as a replacement for fossil fuels. We 1.7m (and growing) Aucklanders have to cut our emissions by 50 percent by 2030 and reach net zero by 2050 if we are to do our part to keep the rise in temperatures under 1.5C.
Auckland Council has a plausible, though outline, plan to do so which it released late last year. It is Te Tāruke-ā-Tāwhiri: Auckland’s Climate Plan. As the chart below shows, reducing transport emissions is the overwhelming task.
Tackling transport emissions requires us all to make big changes in our transport modes and behaviour. The best insights come from Dr. Paul Winton, a climate analyst and investor, in his 1.5 Project . If you have a go on his online tool you can see how our choices make a big difference.
So far, though, the Council, aided and abetted by the government, is failing us on our transition to a low carbon economy. For example, Auckland’s latest 10-year transport investment plan will increase emissions not reduce them. One reason is the government has delayed funding which has forced the slowdown of construction on the Eastern suburbs busway project .
Vector, though, wants to play a big leadership role by supplying more and cleaner electricity to help us decarbonise our economy in 21st century ways. It’s made a good start in spite of the severe 20th century regulatory handicaps in its sector. For example it has:
– Pioneered in New Zealand battery storage of electricity to enable it to meet peak demand in some neighbourhoods without investing a bigger sum in line upgrades. The electricity sector was deeply sceptical, if not outright cynical, when it installed its first in Auckland five years ago. Now big gentailers are following suit.
– Developed considerable expertise in solar generation and distribution. While its own small projects help its operations, it’s done big ones for customers such as Watercare on the Northshore, Yealands winery in Marlborough and Fletcher Building’s Laminex plant in Hamilton, plus some 23 projects across the Pacific.
It wants to build more for its own use. But electricity regulations tightly cap the amount it can own, and bars it from retailing the electricity thereby forcing it into the wholesale market where it would be against the dominant gentailers, or into power purchase agreements.
– Rapidly built a joint venture with Amazon Web Services (to which it contributes some dozens of software engineers) to develop its New Energy Platform for here and overseas. This is for the likes of smart gas and electricity meters. On the latter it is working on meeting the upcoming 5-minute electricity market in Australia, which is a big advance on the 30-minute cycle of our wholesale market. Very rapid fluctuations in the likes of wind and solar generation drive the need for such a fast-response market.
– Run an EV Smart Charging trial in Auckland to show how algorithm-driven dynamic charging via a digital platform can manage the load on the network when more EVs are plugged in, thereby somewhat reducing the need to build new capacity.
– Exploring how its gas reticulation network can help residential and industrial users transition away from natural gas to lower emissions versions blended with biogas or hydrogen. To that end its working with Firstgas and PowerCo in the Gas Industry Future Working Group.
Vector is investing in such future opportunities while keeping up with its investment in its regulated electricity network in Auckland, as this chart from its latest annual report shows.
But the old economy model of electricity regulation is severely hampering the ability of Vector and other innovators to invest more, faster and more flexibly in a 21st century electricity sector. Some 55 percent of its capital expenditure is ruled by these old regulations, while Vector is free to deploy the other 45 percent in commercial ways appropriate for fast-forwarding technology change.
What 21st century regulation entails is explained well in the ReCosting Energy work by Laura Sandys, a UK energy regulation expert and her colleagues at Challenging Ideas, a UK think tank.
ReCosting Energy highlights the building blocks of “deep digitalisation”, and a “fully costed system with new metrics” to drive carbon cuts while also delivering a “citizens’ dividend”. Vector is championing this work here, as Robyn Holdaway, Vector’s head of Public Policy, explained in this Linkedin post last December.
The citizen dividend is important because energy poverty is a considerable issue here, as the Living Wage Movement Aotearoa reports in its analysis of the financial challenges faced by our low income households. Based on 2017 data, low income households spent $3,750 that year on electricity and $6,840 on transport for a total of $10,592 on average across New Zealand.
In Auckland, such low income households would have spent more than $10,592. Against that, they received in 2017 a dividend of $350 from Vector, via Entrust. Energy costs have risen since. But the dividend per customer fell to $280 last year.
Yet we can achieve a new energy future that, thanks to electricity, can reduce energy emissions in transport and electricity and reduce energy poverty.
A dynamic and innovative Vector is absolutely essential to that future. So we need the government to give the electricity sector the modern regulatory regime it needs.
But if you live in Auckland, you can free Vector from its ownership constraints. Do so by voting in the Entrust election. You’ll receive your voting papers by post after October 14; and the election scrutineers need to receive them back by post by October 29.
There is a highly qualified slate of candidates challenging the list of deeply inadequate C&R candidates for the five Entrust trustee roles. Under the More for You, Better for Climate banner they are:
– Lance Wiggs, a successful venture capitalist with his Punakaiki Fund; upcoming is his Climate Capital Fund.
– Rohan MacMahon, who was strategy director of Crown Fibre Holdings, which ran the government’s highly successful investment in the fibre broadband roll out across the country, and now a partner in the Climate Capital Fund.
– Emma McInnes, an urban designer and city planner, and former member of Generation Zero, the climate action advocates who initiated and led the successful campaign for the Zero Carbon Act, among other notable achievements.
– Dewy Sacayan, a litigation lawyer and also a Gen Zero campaigner for the Zero Carbon Act.
– Leon Wijohn, a partner at Deloitte NZ for 10 years until late last year, where he established its Maori Business Services. The eldest of 10 children, he grew up in South Auckland.
The slate argues that their expertise will help Vector embrace the future and grow faster. This will deliver economic benefits in terms of reduced energy costs as Vector helps us decarbonise transport and industry, which in turn will deliver stronger profits and larger dividends for the public; and a better environment by helping us meet our climate goals.
They are making bold promises. They deserve a chance to make good on them.
In addition, this is a test of citizen activism in support of citizen ownership.
The previous Entrust election ran true to form. Once again, C&R made it a real turnoff, hence only 12.44 percent of voters cast their ballots.
This time, exercise your ownership rights. Vote in October to empower the future you want.
