Vector wins claim on Penrose fire compensation

Wednesday 5th December 2018

Vector is to be repaid more than $300,000 after the High Court ruled the country’s electricity industry disputes body was wrong to find the company’s negligence had caused the Penrose substation fire in 2014 and that it had breached a duty of care to its commercial customers.

Justice Patricia Courtney has quashed rulings Utilities Disputes commissioner Nanette Moreau made in favour of supermarket chain Progressive Enterprises, fast-food operator WendCo and cool store operator Americold.

The commissioner had awarded them just over $297,000 – most of it to Progressive - for costs due to the loss of power to their sites immediately after the October 2014 fire. Most of that sum was for generator hire and stock losses.

Justice Courtney has ordered the commissioner to reconsider the three firms’ complaints in light of the errors the court found in her decision. The trio have also been ordered to repay Vector the money they received plus 5 percent interest a year.

The case – heard in March - was a key one for the power sector and utility providers more broadly. Vector argued the ruling was effectively making the company an insurer to its bigger commercial power users, all of whom can manage the risk of power disruptions to their operations with their own insurance or back-up generation.

Vector said the duty of care Utilities Disputes had created would have required the company to operate a network without outages, which could have cost as much as $4.3 billion to deliver. It would have also been a disincentive on firms developing their own resilience and disaster-recovery plans.

Vector welcomed the court’s decision, delivered last week, saying it was pleased to see common sense prevail.

“We felt it was critical to seek a judicial review to try and get clarity on behalf of the infrastructure industry and this decision provides that clarity,” chief executive Simon Mackenzie said.

“We had concerns that the decision meant infrastructure providers would, effectively, have to either act as insurers for commercial businesses, or over-invest in the provision of guaranteed infrastructure resilience for commercial businesses relative to the investment in residential customer resilience.

“The case affirms the longstanding position in New Zealand and other common law countries that businesses affected by power or other outages cannot sue utility providers for their consequential loss.”

The Penrose substation fire in October 2014 affected about 73,000 Auckland consumers, leaving some without power for more than two days. The Electricity Authority estimated the economic harm at between $42 million and $72 million.

In November 2015 the authority found that Vector and national grid operator Transpower should have been aware of the potential risk of fire from the type of 11-kilovolt cable that failed, and the risk that having 38 power and other control cables in one surface-level trench posed.

Based on that decision, Utilities Disputes said Vector’s negligence had contributed to the fire. It argued that consumers were not able to protect themselves from that type of sustained outage and that a duty of care was needed to ensure that Vector operated and maintained its network to a proper standard.

Justice Courtney said the “novel” duty of care the commissioner imposed was a “material error of law.”

No such duty then, or since, has been imposed on an electricity supplier arising from a power outage in New Zealand, she noted.

“Moreover, even if it had been open to the commissioner to impose a duty of care, her approach was erroneous as a result of failing to properly consider the relevance of reliance, the contractual context and the true nature of the losses being claimed, and failing to approach the significance of the regulatory regime correctly.”

Justice Courtney found the commissioner had also gone too far in her interpretation of the Electricity Authority’s findings on the fire.

“There are no specific findings as to what Vector ought to have done, having regard to the likely cost involved. It may well be that low-cost steps could and should have been taken, but that was beyond the scope of the Electricity Authority’s inquiry and its report did not provide a sufficient basis for a finding by the commissioner to that effect," she said.

“Given my conclusion that there was an insufficient basis on which the commissioner could have identified what steps Vector should have taken to mitigate the risk of a power outage, it follows that there was an insufficient basis for the commissioner’s conclusion as to causation.”

(BusinessDesk)

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