Aurora Energy faces court action after breaching its reliability standards for two years running.
The company, which operates the electricity networks in Dunedin, Queenstown and Central Otago, under-invested in asset maintenance and renewal, resulting in the deterioration of many of its poles, cables and transformers, the Commerce Commission said.
"The commission considers that this led to an increased level of power outages and therefore significantly contributed to Aurora's breaches of the quality standards," the regulator said in a statement. It has now filed proceedings with the High Court.
Aurora faces a maximum penalty of up to $5 million on each of the breaches for the 2016 and 2017 years. The commission noted that Aurora has also breached its performance standards for the year to the end of March.
Aurora, owned by Dunedin City Council, last year restructured its business, established a new board and brought in new management after a review by Deloitte found the firm had been underspending on maintenance for decades. The review specifically faulted the structure of the business, in which council-owned Delta Utilities – Aurora's maintenance contractor - shared common management and directors with Aurora and Dunedin City Holdings.
The council initiated the review after Aurora failed to keep up with an escalating programme to replace failing wooden poles across its networks. The company had been planning to seek a new customised price and quality path from the Commerce Commission to help cope with that work and strong load growth around Queenstown.
But the new management deferred that and in May appointed engineering consultancy WSP to carry out an independent review of the firm's assets and help identify priority work areas.
Last month chief executive Richard Fletcher announced that Hastings-based Unison Contracting and Christchurch-based Connetics would join Delta to carry out Aurora's maintenance and renewal work during the next five years. The new contracts take effect in April and the firms will establish local bases in the area.