Blackout

Last week in the Australian state of South Australia the whole state – a region bigger than the country of Egypt – lost power as a result of a major weather event.

Whilst it is too early to yet fully understand the reasons for the blackout and as we await the inevitable report that will follow, we thought that this week we would resist the 5 week blackout that hit the central business district of Auckland, New Zealand in February and March of 1998.

As Wikipedia recounts:

At the time, almost all of downtown Auckland was supplied with electricity by Mercury Energy Limited via four 110 kV power cables from the national grid at Transpower’s Penrose substation, with two cables each connecting to two central city substations at Liverpool Street and Quay Street. The two cables connecting to Quay Street were 40-year-old gas-insulated cables that were past their replacement date.

One of the Quay Street cables failed on 20 January, possibly due to the unusually hot and dry conditions, although this did not warrant a crisis as the three remaining cables could still supply the central city.

The second Quay street cable failed on 9 February, leaving only the Liverpool Street cables supplying the city.

Due to the increased load from the failure of the first cables, these remaining two cables failed on 19 and 20 February, leaving the entire central city supplied by a single 22 kV cable from Kingsland, resulting in about 20 city blocks (except parts of a few streets) losing all power.

In the five weeks it took to restore the power supply, about 60,000 of the 74,000 people who worked in the area worked from home or from relocated offices in the suburbs. Some businesses relocated staff to other New Zealand cities, or even to Australia. The majority of the 6,000 apartment dwellers in the area had to find alternative accommodation. Temporary power was supplied to the Port of Auckland by the Union Rotorua, a gas turbine powered cargo ship.

In July 1998 The Report of the Ministerial Inquiry into the Auckland Power Supply Failure was released.

It was the first ever report of inquiry that McLeod Governance read and to this day contains the one of the best observations of any report that we have had the pleasure to read:

The corporate governance structure of Mercury Energy did not cause the power supply to fail, but through its effect on governance an opportunity to prevent it was lost.

So what happened?

In consideration of why the power supply failed, the Inquiry concluded with respect to the Auckland Electric Power Board:

  • Acceptance testing of the gas cables, at the time of installation, was not consistent with industry practice;
  • The 1988 and 1989 AEPB Annual Reports indicated a high level of awareness of the unreliability of the gas cables and the potential need to advance consideration of their replacement; and
  • Despite awareness of the increased unreliability of the gas cables, the cause of repetitive gas leaks on the 110 kV gas cables was not resolved by systematic investigation.

The Inquiry found with respect to Mercury Energy Ltd:

  • While Mercury Energy was a competent distribution company, it did not have the required expertise, operations and management procedures for the 110 kV cables;
  • The cause of repetitive gas leaks and faults was not resolved by systematic investigation;
  • A well-developed asset audit and asset management programme for the 110 kV cables did not exist;
  • Maintenance contracts for the 110 kV cables were deficient in terms of their specification, management and monitoring;
  • There was inadequate internal expertise on 110 kV cables and inadequate participation in external forums to remain current with cable operating and maintenance practices;
  • The specification of the 110 kV cables was never checked nor reassessed against the “as built” conditions;
  • Mechanisms for accountability and monitoring of network risk management were not overseen by the Risk Management Committee, but were reportedly handled directly by the Board;
  • The 110 kV transmission risk in 1997 was materially underestimated and as a consequence actual security of supply was under-planned;
  • The reliance on informal arrangements for the pooling of spares for the 110 kV cables was ineffective as shown by at least one incident prior to 1998;
  • The usual effect of corporate governance on company performance may in the Mercury Energy case have been compromised by the absence of clear Board accountability through effective shareholder and/or market disciplines.
  • Mercury Energy’s risk management and contingency planning for the 110 kV cables were a contributing factor in the power supply failure;
  • AEPB and Mercury Energy’s operations and asset management practices for the 110 kV cables were below industry standards and this was a contributing factor in the power supply failure.

**

This remains a report 18 years on well worth reading.  

It touches on so many areas of process, governance and resilience.

There is a fascinating if somewhat sad footnote to the event.  As Wired noted in a 1999 review of the incident:

Nobody even died – unless you count Wayne Gilbert, chief executive of Mercury Energy, the utility responsible for the disaster.

Only days before a government commission announced that Mercury’s mismanagement caused the outage, he suffered a heart attack at his desk.

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