Have infrastructure lines companies becoming bullies and price gougers?

Infrastructure lines companies are becoming a right menace to property developers and owners around Auckland and the Government needs to pay attention.

I’m reliably informed of a variety of situations that are causing grief but two main issues arise constantly, with landowners powerless to do much about it because the law is an arse.

Issue #1:

Telecoms and power companies have the legal right to install lines in the road reserve. More often than not they have no strategic plan for where cabinets and poles should be located.

Property owner comes along with a development and for one reason or another might require an adjustment to the infrastructure location. That’s dealt with under legislation that requires the entity wanting the equipment moved to pay for it to happen.

The problem is, at what cost? Developers and ordinary property owners across Auckland are complaining that the costs are extortionate and made up.

One Auckland developer told of receiving a price to relocate a chorus cabinet a distance of 1m for $78,000. When the developer decided not to bother – opting for changes to the development – Chorus came back with a new price of $16,000. That’s a $52,000 difference! An amazing difference? Or an absurdly expensive rort? This carry on is happening everywhere.

The problem comes down to cost. Sure infrastructure providers can’t guess where to place equipment but when they have to move it, do they need to be robbers dogs and grossly overcharge?   

Issue #2:

Power companies are all privately owned including Vector in Auckland, which is 74% owned by a trust and is listed on the NZX.

When developers build subdivisions they get hit with costs from lines companies like Vector for installing embedded lines, transformers and other equipment into their subdivisions, often costing into the millions.

The issue is that the developer is required to pay for the lines at all – despite that the asset those lines become, and its revenue, is passed to be owned by a privately-owned infrastructure company. It’s not going to the Council is it?

Why don’t privately-owned lines companies pay for their own infrastructure? The current situation sounds pretty cheeky to me. Logic says a business should pay for its own costs.

Does Air NZ ask ratepayers or airport owners or passengers to pay for the plane before they will fly it? No. They buy the plane and then recoup costs through regular business operations.

Developers point out that power companies should be paying for their own infrastructure – particularly if they are going to generate revenue, depreciation and issue dividends as the result of benefitting from it. Not only is it cheeky but it’s a rort!

I’ve been told that the developers also notice substantial differences in costs between what the lines companies will do the work for, and what developers can get it done for if they had the choice to do it themselves. But they are bullied into having to go with the incumbent lines company’s prices.

All of which get passed down to homeowners in the cost of sections, affecting affordability.

Of course, property developers could opt to embed and own the lines and own them forever – applying to the MBIE to register as an infrastructure company. But many also don’t see good reason why they should have to become a lines company in order to navigate the problem. That’s a different business model.

Logically, this all looks to be a hangover from when power companies were government-owned infrastructure. These days power and lines companies are essentially businesses making profits for shareholders and they should be capitalising their own growth and investing their own funds.

Subdivisions – whether greenfield or brownfield – would be more affordable without the burden of these costs.

What appears to me to be an issue is that lines companies and telecoms companies exist in a void of legislation that perhaps needs reform.

As a result they gouge costs and manage to end up owning infrastructure they didn’t pay a bean to obtain. I’d say that is something that needs fixing.

For the better good of all.

 


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  • The other Neil

    The lines company approach is definitely dodgy. For clarity the Government has never owned Vector or its predecessors. Part of the 1990’s reforms was that the lines companies (then Power Boards) had to determine who owned them. Vector is listed with the Trust owning the majority. The assets of the Trust vest to the Council in 80 years or so. This too is also poor and why they keep sniffing around trying to find a way to grab the assets sooner.

    The Council also partakes in these types of approaches via Watercare. Go see what it costs to get a house connected to the existing assets.

  • venator

    Not just Auckland. Their non negotiable presence is a mega irritation. Especially when they are now in the hands of foreign Asia entities, such as in Wgtn. This situation needs a select committee to investigate.

  • Not a Troll

    In regard to Issue #2 – these companies are regulated by the Commerce Commission, who set the revenue that they can earn based on their regulated asset base (RAB). If development is not paid for by the company, it does not go into their RAB, and they do not earn any return on these assets (the company is allowed to earn the same revenue but from more customers, resulting in lower pricing spread across the entire customer base).

    That is why these companies can choose to not pay for their own infrastructure. They can also choose to pay – in which case it is added their RAB and will earn the company returns over time. This may result in average price increases for everybody, depending on the relative RAB / customer from the new development relative to the rest of the existing network.

    Whether they are trumping up the actual costs is a separate issue.

    • rustyjohn58

      Thats interesting, what about when a the power company “subsidises” the cost of infrastructure. Counties Power do this. They calculate the cost of the install including a hidden amount for your share of any network upgrade (sub stations etc) and then deduct $500 as their subsidy. So while we (the developer) is still paying the bulk of the cost the power company claim to be paying some of it.

  • Harold

    In my personal experience Councils are the worst offenders. At least the utility companies, which granted less than competent much of the time, do have some competitive pressures in play.

    For example in Wellington if you have a Vodafone line outside then Chorus will do the install for free (they contract it that way but it doesn’t turn out that way). Powerco will also generally install the gas for free as they realise it is a discretionary service. WEL generally provide a contribution (~$4k per unit) for electricity connection.

    The real thieves are the Council. Example being a residential town house development we did a year or so ago. All the WCC info shows a storm water line in the road reserve immediately out the front of the properties. In reality it doesn’t exist (even thought houses were on the side and had been bowled). So cameras go down, heads are scratched until they state that a new line will have to be installed.

    Great, when will you start (as it’s you line in your road reserve)? No no no, you’ll have to install it in the road reserve to our specifications say the Council. I presume thus that we or the residents will own the line and and there will bo no targeted storm water rating applied (as the storm water went across the road and onto the beach as is typical). No no no say the WCC. $15k later for the line (and even then they approved the line in ceramic, and then when it was laid the inspector refused to sign it off unless it was HDPE, so up comes the line, down goes the HDPE amidst much threatens of litigation and swearing!).

    We then query why we are paying for the line when we have to make an infrastructure contribution (which never goes into a holding fund for infrastructure, but just gets spent by the Council). It would appear that we are triple paying .. firstly to lay the line and then ‘gift’ it to the WCC, then we have to pay an infrastructure fee (presumably to cover such items of infrastructure) and then residents are rated $2k pa for storm water (which consisted of this line and a line across the road to the beach).

    All falls on deaf ears. They have no need to be competent, no need to be efficient and no need to be reasonable. Don’t get me started on the sewer, consenting or internal corruption/competence issues :-)

  • Muffin

    Its really like dealing with a monopoly.

    i.e. Me to Northpower ” we are doing a 4 lot subdivision and would like to know if you will want a transformer and if so where, we need this information to submit a consent.

    Northpower: “we can look at that for you in 6- 8 weeks”

    Me: ” I dont need it done, just need to know what you will want mroe or less so we can provision for it and advise so on the consent”

    Northpower: “yes that will take 6 – 8 weeks for us to look at it”

    Me: ” is there anyone else I can talk to or use to advise”

    Northpower: “no”

    the end result, new transformer, new power pole, all paid for by me and they where the most difficult to tie down to the job, then their cable popped out of the ground in front of the plinths when the truck went over it.

    Just usless and costly, but with no competion at all what do we expect.

    Stuff the 26 million on the flag, its these sorts of costs that arent obvous to most people that really add to the cost of living.

    We need real politicians who can undo these monopolies.

  • cows4me

    New Zealander’s , particularly government sanctioned New Zealander’s are in a headlong rush to extort as much wealth from their countrymen as they can get their greedy stinking fingers on. Forget the crap about our wonderful place on the financial ladder of the world, it’s all a mirage. Costs to do business let a lone live in this country increase far beyond the stated inflation rate. The greatest offender is government, both central and local. So why are we been held at ransom. Because government is to large, many do nothing productive and they removed untold billions from the economy in the belief that sharing, oops stealing, the wealth of the productive sector and increasing the unproductive sector by the use of this wealth will produce a stable country. This of course works well till, as we all know, the money runs out. Over the last few weeks I’ve heard of true horror stories about the unbridled greed of those that believe outright extortion is the only way. What is really happening is no different than a dog trying to catch it’s tail, as charges such as infrastructure services reach such mindless heights those trying to meet these cost suffer then does everyone else. In the end it forces all to live beyond their means and slowly but surely the whole system collapses.

    • Rick H

      WE need to rid our government of every “List Trougher”.
      If the didn’t win their local body electorate, they should not continue to be paid for by us tax payers.
      They should be nowhere near our government in any way, shape nor form.
      If they then end up on the dole, so be it.
      Better to pay them 30 grand a year, instead of the “between 150 and 250 grand a year each.

    • Brian Dingwall

      The sum total of all income taxes, GST, company taxes, rates, council charges, excises, in other words, no matter which government is in power, except in emergency, all central and local government income should be limited to 25% of GDP….does anyone know offhand what it is for us at the moment? My gess is well over 40% possibly nearer 50%…time series data would be illuminating too, as I’m sure their rapacious hands get ever more greedy….

      • Brian Dingwall

        The high point on this curve occurs when Govt outlay is about 25% of GDP

  • Disinfectant

    NZTA are the same.
    Try for a Resource Consent to access a site off a highway and they will say fine, but we will appoint our contractor to do it and invoice you for the cost.

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