Horizon Energy warned for failing to meet good industry practice on lines network

The Commerce Commission has warned power lines company Horizon Energy for contravening its network quality standards through an excessive level of power outages in the 2017 and 2018 years.

Horizon owns and operates the poles, lines and other equipment that distributes electricity from Transpower’s national grid to more than 24,000 customers in the Eastern Bay of Plenty.

As a regulated monopoly under the Commerce Act, Horizon is subject to price-quality regulation. The price path sets limits on the total revenue Horizon can earn, which affects how much consumers pay for lines charges in their electricity bills. Horizon is also subject to quality standards which set annual limits for the average number and duration of power outages that consumers experience on its network.

As part of its reporting obligations, Horizon disclosed to the Commission that it contravened its quality standards in the year ending 31 March 2018.

Commission deputy chair Sue Begg said the Commission’s decision to issue a warning letter was made after an investigation which included site visits to inspect the network, as well as the review of information provided by Horizon and the independent opinion of engineering experts Strata Energy Consulting.

“Our investigation found that Horizon generally had good information about its network and assets. We concluded that the contravention was primarily driven by factors external to and largely outside of Horizon’s control, including defective equipment and adverse weather events,” Ms Begg said.

However, the investigation found two aspects where Horizon failed to meet good industry practice. The first related to an outage in the Galatea area, including the township of Murupara, which affected more than 1,700 customers in April 2016.

“This outage was most probably caused by lightning. However, our view is that Horizon’s failure to address this part of the network’s reduced reliability with sufficient urgency, played a concerning role in its contravention of our quality standards. This is especially the case as these reliability issues had persisted since 2011,” Ms Begg said.

“We believe that if network upgrades had been undertaken earlier, the impact of the April 2016 outage on Galatea customers could have been mitigated.”

The Commission also noted that Horizon failed to conduct formal and rigorous post-event reviews, although this was not a contributory factor for the contravention.

“If Horizon contravenes its quality standards again in future, this warning will be taken into account and may lead us towards a stronger enforcement response, especially if the concerns raised are not addressed,” Ms Begg said.

A copy of the warning letter is available on the Commission’s website. The Commission intends to publish the engineering report by Strata at a later date.

Background

The current price-quality regulatory regime took effect in 2009. The aim of the regime is to mimic the effects seen in competitive markets so regulated companies, such as Horizon, are limited in their ability to earn excessive profits, as well as having incentives to innovate, invest, and provide services at a quality consumers expect.

To contravene a quality standard under the rules that applied between 2015 and 2020, a lines company had to exceed its annual reliability assessment in two out of three years. The maximum financial penalty that can be imposed by a court on an electricity lines company for a contravention of its price-quality path is $5 million per act or omission, with any penalty payable to the Crown.

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