Refund decision for overcharging up to Commerce Commission: Alpine Energy
Wednesday, 28 August 2024
Alpine Energy says the Commerce Commission will decide whether customers are refunded for historic overcharging by the lines company.
Giving an update on the pricing error this week, Alpine Energy board chairperson Melissa Clark-Reynolds told The Timaru Herald the case was unprecedented and thanked the community for its patience while the matter was investigated.
It had been more than four months since the lines company, responsible for the distribution of electricity to 33,500 residential and commercial customers across South Canterbury, admitted overcharging all customers for more than 9 years, with the estimated amount of the overcharges about $19 million.
The amount equated to about $2m a year, or 3% of the company’s total revenue from 2015 until August 2023 when the error was discovered.
It was eight months before the company fronted up to its customers, saying there had been a “non-deliberate” error which had seen them overcharged for the lines component of their bills.
Since then, there has been no update given on the original estimates, and a Commerce Commission investigation into the matter is ongoing.
Asked whether customers could expect to be refunded or reimbursed in some other way, and when the company was likely to start paying shareholder dividends again, Clark-Reynolds replied: “No other organisation has found itself in the situation we are in, so there is no precedent for how to best handle remediation.
“The Commission’s decision will include the details about the financial aspects of the remediation. The Board would like to make things good with the community as promptly as is possible within the Commerce Commission framework.”
According to a list of FAQs on its website, Alpine Energy suggested one possible solution could be “a reduction in lines charges going forward”.
That list also addressed the length of time it was taking to find a solution and explained it was due to the “complex nature and length of the error”.
“Alpine needed to review 9 years of information disclosures and lodge these with the Commerce Commission. This took until the end of November 2023. At that point Alpine started to work through the impact on pricing and revenues, a process made more complex by the error spanning two five-year regulatory periods … and having to re-run price paths from 9 years ago that are all linked … and had methodology changes through that period.”
Clark-Reynolds said she could not say when shareholder dividends, suspended by the board due to “uncertainty” over the impact of the error, would be paid again.
“We review the payment of dividends regularly, but remain in a period of uncertainty. We cannot control the investigation or remediation timetable.”
TDHL owns a 47.5% stake in Alpine Energy alongside LinesTrust South Canterbury (40%) and the Waimate (7.54%) and Mackenzie (4.96%) district councils.
Clark-Reynolds would not be drawn on whether any staff had lost their role as a result of the investigation.
“It is not appropriate for me to comment on any employee relationships. There have been some changes in the Board make-up and we are currently recruiting for additional Board members with deep sector experience.”
In April, it was confirmed former Board chairperson, Warren McNabb, had resigned. Days later, Clark-Reynolds, who was appointed to replace McNabb, confirmed the head of the audit and risk committee had also been replaced with Kevin Winders replacing Linda Robertson.
The list of FAQs on the company website also addressed the error itself, and says it stemmed from “an oversight in depreciation calculations impacting the Regulatory Asset Base”.
“A back-end RAB spreadsheet calculation effectively hid the depreciation error from view while it generated imprecise asset values for disclosure to the Commerce Commission.
“Company assets with different depreciation rates were grouped together and depreciated at the same rate. These values led to an incorrect calculation of allowable revenues.
“Prices to customers are based on these revenue limits, and customers were therefore overcharged.”
The Timaru Herald asked Clark-Reynolds specifically whether assets had been depreciated below zero dollars, and to what value assets had been depreciated.
“Given where we are in the process, I am not going to answer technical questions. I can say that the error was created over a decade ago, and was missed by all concerned until one of our employees found the error last year and brought it to the CE’s attention.
“Processes have been changed so that this error could not occur again. The Commission’s decision will include a summary of the facts which we expect will address questions on the technicalities.”
Commerce Commission general manager of infrastructure regulation, Andy Burgess, said its investigation was a “matter of priority”.
“Our investigation into Alpine Energy’s disclosure errors and any resulting overcharging of customers is ongoing.”
Burgess said there were a range of potential actions the Commission could take and said those included from taking no action, to issuing a compliance advice or warning letter, to accepting enforceable undertakings, or bringing proceedings, or a combination of those actions.
“We are unable to provide any further comment due to the ongoing nature of the investigation.”
However, he said the outcome would be made public in due course.
Alpine Energy also issued what it referred to as a “holding statement” in response to the questions put to Clark-Reynolds.
“Alpine Energy is making good progress on correcting an historical pricing error which resulted in an accidental over-recovery of lines charges from 2015 to May this year.”
A spokesperson said the lines company had been working with the commission on the agreed facts and the most practical option, or options, to correct the overcharge error.
“Once again, Alpine apologises to customers for the historical pricing error, and thanks them for their patience while the issue is resolved.
“To keep customers and stakeholders informed, Alpine is preparing a more comprehensive media statement within the next fortnight.
“We understand that this does not directly address all of the questions you’ve raised. However, as we are still in the midst of this investigation, it is crucial for us to focus on getting this right for our customers.“