Historical pricing error
Tuesday 16 April 2024
Alpine Energy working urgently to rectify historical error
Alpine Energy has discovered historical errors in its Information Disclosure statements and immediately begun a process to remedy the situation.
This administrative error resulted in the setting of revenue targets higher than they should have been in 2015-23, leading to non-deliberate over-charging of the lines component of electricity bills.
Alpine Energy Chair Melissa Clark-Reynolds said the regrettable error discovered in the 2023 audit would be fixed in a transparent, timely and practical way.
“The Board acknowledges the mistake and accepts responsibility for correcting it. We will work with the Commerce Commission to agree the best way to do this,” she said.
“The complexity of the financial models used to regulate the sector make it a challenging task to precisely establish the overcharged amount. This will need to be worked through with the Commission. But an early estimate suggests around $2 million on average a year, or about three percent of Alpine’s total revenue for the nine-year period.
“While we still have much to work through with the Commission, we have taken some initial actions,” Ms Clark-Reynolds said.
“First, we want to prevent this continuing and are resetting this year’s lines charges.
“Second, the Board will not pay an interim dividend for the three months ending March 2024.
“It is unfortunate this accounting error has occurred, but I can assure our customers, shareholders and other stakeholders that the Board is working towards a fair and pragmatic resolution,” Ms Clark-Reynolds said.
For more information please email support@alpineenergy.co.nz
Your lines charges have been updated, effective 1 June
Frequently asked questions
What did the error mean for Alpine customers?
The error meant that Alpine was billing electricity retailers based on revenue forecasts which were higher than they ought to have been. Network costs form part of a customer’s power bill – around 27% on average. Our current estimate is that this translates to network charges being overcharged by around three percent. So as a result, our 33,800 customers were on average paying about one percent more for their electricity than they should have. Going forward, Alpine will work with the Commerce Commission to finalise the assessment and method for correcting this over charging.
How much money in total was over-charged?
An early estimate suggests that Alpine Energy over-charged on average about $2 million a year, or about $19 million over nine years, but this is subject to early assumptions and will likely be adjusted in agreement with the Commerce Commission.
How is Alpine Energy fixing the error?
Alpine Energy has taken several steps to rectify the error, including submitting audited and corrected numbers to our regulator, the Commerce Commission, engaging with them to devise a plan for returning the overcharged amounts, and initiating a pricing adjustment for the current pricing year (ending March 2025).
When was the error discovered?
The error was discovered in early August 2023. The Commerce Commission was notified on 8 August 2023, and shareholders soon after. Alpine then began working through all its historical regulatory and pricing systems to validate the error and quantify it. The revised audited data was submitted to the Commerce Commission in November 2023 and published on our website. In April the board decided to withhold its interim dividend to its four shareholders, reduce its lines charges for the current year to correct the over-charging, and make a public statement so its customers could be fully informed.
Who owns Alpine Energy?
Alpine Energy’s shareholders are Timaru District Holdings Company (47.5%), LineTrust South Canterbury (40%), Waimate District Council (7.54%), and Mackenzie District Council (4.96%).
Why has the dividend been withdrawn?
Alpine is fully focused on correcting the historical error in its disclosures to the Commerce Commission. Given this uncertainty, the board thought it prudent to not progress payment of the $495,936 dividend to shareholders for the quarter ended March 2024. No decision has been taken on future dividends.
Have there been other examples of lines company overcharging?
There have been overcharging situations by other electricity distribution businesses. These involved working out a process alongside the Commerce Commission which resulted in different methods of return.
When will the issue be resolved?
Work on a solution has already begun and will be progressed as quickly as possible in conjunction with the Commerce Commission’s investigation. Alpine will provide a further update when in a position to do so.
What will happen to lines charges?
Alpine has decided to correct its forecast 2024/25 lines charge revenue by about 6% (about $4 million). This aligns our prices with the estimated impact of the historical accounting error on forecast revenue for the 2024/25 year. This will offset the 10% average increase in lines charges which we had previously notified. These lower-then-previously notified charges will apply until 31 March 2025.
When is Alpine actually going to lower its lines charges to correct the error?
Alpine will lower its lines charges to retailers on 1 June 2024. We appreciate the efforts of retailers to make this change quickly and communicate it to customers.
When will I see a change in my power bill?
As mentioned above, Alpine is reducing its lines charges to electricity retailers from 1 June 2024. Any change in retail pricing and therefore your monthly bill will depend on your arrangements with your retailer, and your electricity consumption. Your retailer chooses how to package our delivery prices in your bill, including how it might be bundled with any other services.
How much can I expect to save on my power bill with the price reset?
This depends on how your retailer packages lines charges in your retail bill, along with other factors such as your electricity consumption. While we can’t comment on how this looks for you, we can let you know that Alpine previously notified a 10 percent increase in total lines revenue (see table 1 here) for the year ending FY2025. Our June 1 price reset is equivalent to a 6% decrease (on an annual basis) across all customers.
Will the price reset affect other components of my power bill?
No, only the line charge component is changing.
How will I know if the price reset has been applied to my power bill?
Your electricity retailer will notify you of any adjustments in your power bill that could follow 1 June, when we reduce our lines charges. As said previously, Alpine will be working with electricity retailers to pass on the 1 June reduction in lines charges as soon as possible, taking pressure off your winter power bills.
Do the new prices allow for being overcharged in April and May as well?
Yes. Alpine’s adjustment to lines charges from 1 June 2024 aims to correct the over-charging in April and May and also all its future pricing out to March 2025. We’ll let you know early next year about the pricing which will apply after April 2025. This will depend on agreeing a suitable solution, that corrects the historic error, with our regulator the Commerce Commission.
Will customers be refunded for the overcharged amounts?
We have assured customers of our commitment that the regrettable error will be fixed in a transparent, timely and practical way. Alpine will work with the Commerce Commission to finalise the assessment and method for correcting the over-charging.
Will individual customers each receive a payment?
The reparation method has yet to be determined. It could involve a reduction in lines charges going forward, which will mean customers paying lower power bills than they otherwise would have. However, the exact method for correcting the over payment will need to be worked through with the Commerce Commission.
Why does it take so long to find a solution?
Because of the complex nature and length of the error. Alpine needed to review nine 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 (April 2015 to March 2020 and April 2020 to March 2025) and having to re-run price paths from nine years ago that are all linked to each other and had methodology changes through that period.
How is Alpine Energy maintaining transparency and accountability throughout this process?
We have held specific sessions with shareholders, key customers, and stakeholders to inform them about the matter. Data provided to the Commerce Commission is publicly available and audited, as it has been since 2010. We will keep customers updated as we progress.
Will any Alpine staff be held accountable for the accounting error?
Alpine Energy’s board has taken full responsibility for the processes and structure which led to the current situation and the subsequent impacts on revenues and pricing. The board does not blame individual or groups of employees for the error.
What was the error?
The error stemmed from an oversight in depreciation calculations impacting the Regulatory Asset Base (RAB). The error was discovered during the routine annual audit of information disclosures in 2023. 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.
What are Information Disclosures?
The Commerce Commission requires lines companies to publish extensive audited financial and non-financial information each year detailing their performance. Analysis of the data on pricing, future expenditure forecasts, outages, interruptions, and financials shows how local lines companies are performing individually and compared to others, and tracks changes over time.
How will Alpine keep the community updated?
Alpine is committed to communicating with transparency to the South Canterbury community. To the general public, information will be shared on our website, Facebook page and in local newspapers and on radio. If anyone has any questions, they are welcome to call us on 0800 66 11 77 or email support@alpineenergy.co.nz