Where the profit comes from changes the bill
Vector, the electricity distribution company for Auckland, reported that net profit for the year to June rose 55 per cent to 240.2 million dollars. Electricity revenue rose 18 per cent to 905 million dollars. The company says the jump largely reflects the first full year under the Commerce Commission's latest electricity distribution pricing reset. Behind the higher revenue stands the reset price of delivery more than the volume of electricity carried.[1]
A distribution company's revenue comes from the delivery charge that connected households and businesses pay, so when the allowed price rises, part of the profit has its origin in the people paying the bill. There is a reading that pushes back on this. In the same year Vector put a record 512 million dollars into the Auckland network and connected more than 13,000 new homes and businesses, so the higher charge may be funding capacity a growing city needs. Paying now for a benefit spread over years still leaves open the question of which households carry the burden.[1]
A different source in the same sector
In Mercury's results the money came from somewhere else. Operating earnings rose 36 per cent to 1.07 billion dollars, against 786 million dollars a year earlier, passing 1 billion dollars for the first time. Mercury attributes this largely to strong inflows into the Waikato catchment: hydro generation rose 31 per cent on the year. The company says 66 per cent of the year's operating earnings went back into new and existing renewable generation.[2]
Setting the two results side by side makes visible where an increase in the cost of electricity lands. Mercury's gain rested on hydrology: water was plentiful, generation rose and earnings grew. Vector's gain rested on the price itself, since without the regulator's determination the same network would have carried the same electricity and revenue would not have risen on this scale. That is the difference a household sees: in one case the amount paid moves with the weather, in the other what each customer pays follows a decision. Whether the price decision was right is a separate argument. The narrower question here is which budgets carry the cost. That can be seen while the price decision is being made; by the time the profit figure is announced, the question has already been answered. There is a testable side to it: if the jump the pricing reset produced is a change in level, then without a new determination the growth in Vector's electricity revenue in its next annual result will fall below this year's 18 per cent.[1], [2]