Unison Networks issued with compliance advice after contravening quality standards

The Commerce Commission has issued a compliance advice letter to power lines company Unison Networks for contravening its network quality standards through an excessive level of power outages in 2017 and 2018.

Unison owns and operates the poles, lines and other equipment that distributes electricity from Transpower’s national grid to more than 112,000 customers in Hawke’s Bay, Rotorua and Taupo.

As a regulated monopoly under the Commerce Act, Unison is subject to price-quality regulation. The price path sets limits on the total revenue Unison can earn, which affects how much consumers pay for lines charges in their electricity bills. Unison 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, Unison 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 compliance advice was made after an investigation which included site visits, as well as the review of information from Unison and the independent opinion of engineering experts Strata Energy Consulting.

“Overall, we agreed with Strata that several factors outside of Unison’s control contributed to its contravention of the quality standards. These included trees that were outside of Unison’s control falling on parts of the network, higher than normal adverse weather events and third-party damage. Changes in work practices adopted by Unison following the introduction of the Health and Safety at Work Act also had an impact,” Ms Begg said.

The Commission found Unison’s general network management and risk assessment approach met good industry practice. However, it identified two areas where Unison could improve its performance in order to meet good industry practice.

The first was that while Unison generally had good practices in relation to conducting post-event reviews, it missed an opportunity to conduct a post-event review after a major disruption in March 2018, which resulted from a fault on one of Unison’s feeders. The second was that while outage duration related to equipment failure had been decreasing, since 2015 there had been an increase in the number of equipment failure related outages on Unison’s network.

“While these two issues did not contribute to Unison contravening the quality standards, we advise Unison to ensure it carries out post-event reviews when significant outages occur to address and prevent subsequent faults. We also advise Unison to consider undertaking analysis to better understand why the number of outages caused by equipment failure has increased,” Ms Begg said.

A copy of the compliance advice is available on the Commission’s website.

Background

The current price-quality regulatory regime took effect in 2009. The aim of this regulation is to mimic the effects seen in competitive markets so regulated companies, such as Unison, 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.

Under the rules applying between 2015 and 2020, to contravene a quality standard, 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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