Aurora owns and operates the poles, lines and other equipment that distributes electricity from Transpower’s national grid to 90,000 homes, farms and businesses in Dunedin, Central Otago and Queenstown Lakes. 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.

Commission deputy chair Sue Begg said Aurora did not adequately respond to recommendations stemming from the Commission’s 2014 warning to it for contravening its quality standards in the 2012 assessment period.

“Aurora’s previous management and board were well aware of the deteriorating state of its network but failed to take action,” Ms Begg 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.”

The penalty amount imposed by the High Court was jointly recommended by the Commission and Aurora. The penalty for the 2016 year was close to the maximum that could be imposed under the Act, while the penalty for 2018 and 2019 was lower, reflecting the fact that by that point, Aurora had begun to address the sources of its failures to meet good industry practice.

In her judgment released late yesterday, 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 underinvestment and to improve reliability.”

Ms Begg said the deteriorating state of Aurora’s network has had a negative effect on 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. 

In light of the COVID-19 emergency, the judge has not imposed a specific timeframe for payment of the penalty. The parties have leave to come back to the Court if need be when the emergency is over and if the payment has not been made in a reasonable timeframe. 

Separate to these proceedings, Aurora is expected to apply to the Commission in June 2020 for a customised price-quality path (CPP) to support spending $400 million over 3 years to restore its network to address safety and reliability issues. The Commission plans to release an introductory paper on the application in the near future and will consult with consumers throughout the process to determine the new revenue and quality standards for Aurora.

A copy of the court judgment will be available shortly on the Commission’s website.

Background

The current price-quality regulatory regime took effect in 2009. To contravene a quality standard under the regime in place for the period to which these proceedings related, a lines company had to exceed its annual reliability assessment in 2 out of 3 years. The maximum financial penalty that can be imposed on an electricity lines business for a contravention of its price-quality path is $5 million per act or omission, with any penalty to be payable to the Crown. Aurora exceeded its annual reliability assessment for the years ending 31 March 2016, 2017, 2018 and 2019.

Once a penalty has been imposed, section 87A of the Commerce Act allows any person who has suffered loss or damage as a result of the contravention to bring a further claim for compensation against Aurora within 12 months of this penalty decision from the High Court.