2020

Year in Review: Compliance and enforcement in 2020

A key priority for the Authority is compliance and enforcement. Our compliance function aims to improve the industry through education of participants and helps us identify and resolve on-going or systemic issues. We have demonstrated we will enforce market rules when necessary.

This Review looks in more detail at the following items:

1. Key statistics
2. Rulings Panel decisions
3. High Court decision
4. Electricity Authority investigations

1. Key statistics

Number of breaches

2020 has seen 121 breaches notified to the Authority. This is a similar number to 2019.

2. Rulings Panel decisions

Transpower ordered to pay $75,000 for causing major power outage (March 2020)

The Electricity Authority laid a formal complaint against the grid owner, Transpower for causing the loss of supply to Hamilton, Cambridge, the Coromandel Peninsula and the wider Waikato area.  In its decision, the Electricity Rulings Panel observed:

“This was a grid emergency that lasted nearly two hours. A substantial portion of the country was without power for some time. The agreed economic loss was conservatively estimated at $3-4M. It was caused by negligence in carrying out a repair, and opportunities to rectify it were not taken. Danger signals were missed or not followed up on. There is a previous history of breach. Overall, we think a penalty of $75,000 is appropriate in all the circumstances of the case.”

This was the first penalty case since the maximum penalty was increased from $20,000 to $200,000 under the legislation. The Rulings Panel set out how it will determine the seriousness of a breach and the starting penalty, by reference to four bands:

• Low up to $50,000
• Medium up to $100,000
• High up to $150,000
• Very High up to $200,000 (the maximum)

In this case, the Rulings Panel assessed the breach as deserving a starting point of $100,000. This was increased by a further $25,000 due to the “aggravating factor” of Transpower’s history of breaches and warnings. However, as a mitigating factor, the Rulings Panel gave credit to Transpower for its cooperation and production of report highlighting areas for improvement to avoid similar breaches, resulting in a reduction of $50,000. The full decision is here(external link).

Transpower ordered to pay $300,000 for multiple breaches (June 2020)

The Electricity Authority laid two complaints against Transpower in its capacity as both system operator and grid owner. This related to the creation of two grid islands following an accidental tripping of two circuits causing significant frequency disturbances outside the normal band throughout the grid, with the potential for damage to grid connected generation assets.

Transpower accepted its restoration actions had resulted in 10 breaches of the Code as system operator and 3 breaches as grid owner.

In its decision, the Electricity Rulings Panel set the starting penalty at $175,000 for each of the system operator and grid owner. This is the mid-point of high to very high culpability. This decision was based on “the high level of negligence” and the “severity of the breaches”.

The Rulings Panel highlighted two aggravating factors: the failure to self-report and the length of time it took Transpower to investigate the breaches once notified. The Rulings Panel explained the importance of these two factors for a well-functioning industry and regulatory regime:

In regard to self-reporting:

“Mandatory reporting by industry participants is a core aspect of the electricity industry regulatory framework.... Self-reporting…reduces the levels of third-party monitoring required and enables faster reactions if and when breaches occur. It also ensures transparency in a market, especially where functions or responsibilities sit solely with a single entity… Self reporting can result in breaches being reported and dealt with that may not otherwise be identified”.”

In regard to investigating:

“The Enforcement Regulations require industry to promptly, thoroughly, and fairly investigate complaints…An early and thorough investigation allows the learnings to be captured and remedial action to be taken to prevent a recurrence. The Rulings Panel has, in its deliberations, taken into account that whilst an investigation did occur, it was neither prompt nor thorough. This failing, as with the failing to self-report, puts the regulatory regime at risk.”

Although Transpower had undertaken voluntary remedial and improvement actions, the Rulings Panel rejected these as mitigating factors and ruled these were “no more than what should have been done in the first instance”. Instead, the Rulings Panel considered that the relevant mitigating factors were:

• The breaches occurred in a highly complex and stressful real-time circumstances
• Acceptance of culpability at an early opportunity
• Cooperation throughout the investigations and complaint process.

The Rulings Panel reduced the penalty by $25,000 for these mitigating factors in each case and ordered the system operator to pay $150,000 and the grid owner to pay $150,000. The full decision is here(external link).

3. High Court decision

High Court upholds decision of the Electricity Authority to decline to act on Intellihub complaint (November 2020)

The High Court dismissed an appeal by Intellihub Limit against the decision of the Electricity Authority. The Court found that the Authority was justified in its decision and acted reasonably.

Intellihub had complained to the Authority that Genesis was in breach of the Code and requested that an Investigator be appointed. Following preliminary inquiries, the Authority considered the complaint failed to establish a prima facie case and decided to take no further action.

Intellihub argued the Authority made six errors of law, including natural justice breaches, bias and procedural deficiencies. These were all rejected by the Court. The Court was satisfied that the Authority was entitled to conduct preliminary inquiries – including seeking a response from Genesis - before deciding whether or not to take further action:

“Parliament cannot have intended the Authority to take each complaint it receives at face value and launch a formal investigation without first determining whether the complaint is serious and not speculative”.

The Court held that the Authority was justified in concluding that, on the evidence before it, the complaint did not make out a prima facie case. The full decision is here.(external link)

4. Electricity Authority investigations

Electricity Authority completes investigation into Auckland Commercial Solar Ltd (June 2020)

The Authority approved the terms of a settlement between Auckland Commercial Solar Limited and Energy Clearing House Limited. This followed an investigation by the Authority into repeated failures by Auckland Commercial to provide the minimum security by the deadline. In resolving this matter, the parties agreed the following guiding principles:

• meeting the payment requirements to the clearing manager specified in the Code is important for the efficient operation of the electricity market; and
• the breaches were due to process failures rather than any matter concerning the availability of funds.

The settlement agreement is here(external link).

Electricity Authority completes investigation into Transpower (May 2020)

The Authority approved the terms of a settlement involving Transpower in its role as grid owner and system operator. This followed an investigation by the Authority into a self-reported breach that the grid owner had failed to provide the system operator with an updated actual operational status of the Roxburgh special protection scheme.

The parties agreed there was a high potential market and security impact. In resolving this matter, the parties agreed the following guiding principle:

• Managing processes and procedures for the design, commissioning, maintenance, and application of protection systems are important requirements to assure reliable and efficient operation of the electricity industry.

The settlement agreement is here(external link).