24 Mar 2020

$5m fine for Aurora Energy for inadequate maintenance

7:11 pm on 24 March 2020

Aurora Energy has been fined almost $5 million for excessive power cuts on the network stemming from its inadequate maintenance.

Thousands of Aurora Energy power poles red tagged

Thousands of Aurora Energy power poles red tagged, marked to be fixed. Photo: RNZ / YouTube

Aurora owns and operates the network that delivers power to 90,000 homes and businesses in Dunedin, Central Otago and Queenstown Lakes.

Under investing in its network led to increased power cuts between 2016 and 2019.

The High Court has ordered the almost five million dollar fine for Aurora's failings under the Commerce Act.

Commerce Commission deputy chair Sue Begg said Aurora did not respond to an earlier warning in 2014 for not meeting its quality standards in 2012.

"Aurora's previous management and board were well aware of the deteriorating state of its network but failed to take action," she said.

"Aurora's historic under-investment in asset maintenance and renewal including of its poles, cables and transformers has resulted in a material deterioration in Aurora's service quality in recent years.

"In particular, Aurora failed to comply with good industry practice in regard to their data management, asset renewal and replacement, risk management, and vegetation management."

Aurora is a wholly-owned subsidiary of Dunedin City Holdings Limited, owned by the Dunedin City Council.

As a regulated monopoly under the Commerce Act, Aurora is subject to price-quality regulation that sets limits on the total revenue it can earn, as well as the level of outages that can occur on its network.

As part of its reporting obligations, Aurora disclosed to the Commission that it contravened its quality standards for each of the years between 2016 and 2019.

The fine was agreed by the commission and Aurora.

The penalty for the 2016 year was close to the maximum that could be imposed while the penalty for 2018 and 2019 was lower, reflecting that by that time, Aurora had begun to address the sources of its failures to meet good industry practice, Begg said.

In her judgement, Justice Jillian Mallon said: "The key consideration for the 2016 and 2017 assessment periods is the level of risk taken by Aurora, having been warned and provided with a report recommending actions that were not taken. A high penalty is warranted for deterrence purposes in such circumstances.

"I also agree that Aurora's culpability was significantly lower in the 2018 and 2019 assessment periods because Aurora was taking steps to address its historic under-investment and to improve reliability."

Begg said the deteriorating state of Aurora's network had negatively affected its consumers.

"For businesses, power outages can result in staff downtime and a loss of revenue, and for households, power outages can result in loss of perishable items, heating, hot water and revenue for people who work from home. Aurora's consumers should be able to expect good long-term management of their electricity network."

The Commission acknowledges that Aurora has taken a number of steps to improve service quality across its network since 2016, including appointing a new board and management and commencing a major capital works programme.

Due to the Covid-19 outbreak there was no specific timeframe for payment of the penalty.

The parties were given leave to come back to the Court if needed when the emergency was over and if payment had not been made in reasonable time.

Aurora chief executive Richard Fletcher said the company was well-prepared to manage the impact of the lockdown in response to the Covid-19 outbreak.

The company enacted its pandemic response plan in January, keeping non-essential staff at home and key personnel separated, among other measures, he said.

Non-essential work would be deferred while alert level four was in effect.

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