“This is distressingly familiar,” says Richard Healey, who blew the whistle on Otago lines company Aurora in 2016.
As a regulated industry with no competition, lines companies are obliged to outline their spending over the coming decade.
Healey has been poring over the 350-page asset management plan published in April by Canterbury’s lines company Orion, owned by the ratepayers of Christchurch and Selwyn district.
“I really didn’t expect to find anything to wave a stick at and say, ‘that’s it’, but I did.”
Seven years ago, Healey quit his job as a manager at Delta – the company that manages Dunedin and Central Otago’s electricity network for lines company Aurora – so he could speak publicly about its “neglected and decaying network”.
Of particular concern was a lack of investment in pole maintenance and replacements that he feared might injure or kill workers or members of the public.
Delta and Aurora are owned by Dunedin City Council, through a holdings company, and at the time had a common chief executive.
Council-owned companies, such as Aurora, were pressured to increase returns to pay for Dunedin’s new stadium, which meant less was spent on the lines network’s maintenance.
After the story of Healey’s claims broke, the company embarked on a $30 million fast-tracked pole replacement programme, and within four months, Grady Cameron, Delta and Aurora’s chief executive, resigned.
In 2020, Aurora was ordered to pay $5m by the Commerce Commission for breaking network quality standards.
Further north, companies owned by Christchurch’s city council have been under pressure to lift returns for years, as the council tried to plug a gaping hole in its finances after the earthquakes.
A so-called capital release programme realised $440m from the companies between 2015 and 2019, but seriously increased debt.
The need for funds continues. Last year city councillors agreed to a $150m cost blowout for its central-city stadium.
That’s right. A drive for returns from council-owned companies to pay, at least in part, for a stadium has again led to claims of under-investment in an electricity network.
Healey, the Otago whistleblower, believes Orion is embarking on the same path as Aurora.
“Do you think that all the gear is going to suddenly fall off a cliff in three years?” – Richard Healey
On page 325 of Orion’s asset management plan, Healey discovered Orion’s spending on operational “asset replacement and renewal” would drop from $2.4m in the last financial year to $381,000 – an 84 percent decrease.
“I just about fell off my chair.”
Spending recovers to $2.2m in 2025 and then to $5.4m.
A similar lull occurs with vegetation management, which hovers between $4.5m and $5m for three years, before rising steadily to $11.3m in 2028.
The figures stand out, Healey says, because under legislation Orion has to pay the first time vegetation is cut away from lines. However, with a few exceptions, the cost then falls on landowners.
Therefore, the spend should be decreasing, he says – which suggests there’s a backlog of work to catch up with.
In the same cluster of figures, there’s a more than $1m drop in spending on “routine and corrective maintenance and inspection” in this financial year – from $15.5m to $14.3m. By 2026, spending is forecast to soar to $26m.
“Do you think that all the gear is going to suddenly fall off a cliff in three years or do you think they are suppressing maintenance for three years?” says Healey.
Orion’s asset management plan also addresses Healey’s main bugbear with Aurora: poles.
The plan states the replacement rate for low-voltage poles – through which lines connect to houses – has been “moderately low” recently, and the rate will increase – from about 400 poles this year to more than 800 in the next.
Orion has a “targeted” replacement regime for 11-kilovolt power poles. This year, the lines company also adopted a “risk-based” approach to pole inspections.
Capital expenditure is not immune to the three-year lull exhibited in some operational spending. Sub-transmission replacement costs bobble around $1m-$1.2m for the next three years, before jumping to $4.3m in 2027.
Newsroom put Healey’s concerns to Orion, including the context of the company’s rising debt, cost escalations, and a shortage of skilled, trained staff.
Orion Group chief executive Nigel Barbour’s full response was: “Orion customers can be confident in our plans to proactively manage our assets.”
We also asked its owner, Christchurch City Holdings (CCHL), if it was comfortable with Orion cutting or, as Healey puts it, suppressing some spending.
Acting chief executive Paul Silk said: “CCHL is confident Orion is appropriately managing and maintaining its assets.”
Information about Orion’s returns are publicly disclosed in the company’s statement of intent and financial statements, he said.
“In addition to dividends, CCHL receives interest income from Orion, interest income is declared in CCHL’s financial statements.”
Dividends and debt up
Those financial statements show Orion is shovelling money out the door – beyond what it’s making – to its council shareholders. (Christchurch City owns 89 percent, with the balance owned by Selwyn District Council.)
This past year Orion paid $32m in dividends while debt increased from $420m to $498m.
Healey, the electricity industry insider, says if the company hadn’t paid so much in dividends it could have borrowed less or spent more on its network.
Subvention payments of $2.8m to Christchurch City Council (CCC) were listed as an outstanding balance at the end of the financial year.
“This is exactly the Dunedin stadium scenario,” Healey says. “That cash isn’t a payment for anything, it’s a gift.”
Another outstanding expense was $7.3m for “group loss offset payable to CCC”.
Subvention payments and group loss offsets are common corporate structures and tax measures. The former allows a group of commonly owned companies to reduce the taxable income of a profitable company by using the losses from another company.
As mentioned by Silk, the acting CCHL chief executive, there’s interest payable to Christchurch City Holdings because it now runs an “intra group funding facility”, of which Orion had used $100m.
A similar money-go-round was used in Otago – particularly subvention payments. “This is sadly all too familiar,” Healey says.
During Orion’s lull in operational spending there’s a compounding factor: the company’s money isn’t going as far as it used to because of cost escalations.
Orion’s asset management plan estimated over the previous financial year the total cost of project works tendered increased by 23 percent. “Over the previous two years, the cost of installing a power pole increased by more than 40 percent.”
(Going back to Christchurch City Holdings’ capital release programme, while Orion’s dividend payments rose during that time so did its debt.)
Orion’s statement of intent shows it will pay special dividends of $16m over the next two years – which coincides with those aforementioned cuts in asset replacement and renewal, routine and corrective maintenance and inspection, and the lull in expenditure on vegetation management.
There’s a further shadow cast over companies owned by Christchurch’s city council, such as Lyttelton Port Company and construction and maintenance firm Citycare (100 percent owned), and the international airport (75 percent, with the Government).
In response to a cost blowout for the under-construction stadium, and the prospect of ongoing rates increases, the city’s assets are under a strategic review, with the possibility of some of them being sold, either partially or outright.
(Mayor Phil Mauger won’t rule out assets sales, which would breach an election promise.)
Healey says there’s a rule of thumb in the electricity industry that work not done now will cost five times as much later.
Of Orion’s asset management plan, he says: “This is a pretty obvious catalogue of deferred maintenance on a critically degraded asset.”