INFORmATION DISCLOSURE FOR ELECTRICITY NETWORKS ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 FY2021 1

Transcription

1 INFORmATION DISCLOSURE FOR ELECTRICITY NETWORKS ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 FY2021 1

2 contents EXECUTIVE SUMMARY... 2 POWERCO AND THE NEW ZEALAND ELECTRICITY INDUSTRY... 4 OUR ELECTRICITY NETWORK... 6 ASSETS COVERED... 7 THE ASSET MANAGEMENT PLAN AND PROCESS... 8 PURPOSE OF THIS SUMMARY AMP... 9 HOW TO PROVIDE FEEDBACK... 9 PROCESS OVERVIEW... 9 ASSET MANAGEMENT STRATEGY OVERVIEW WHO WANTS WHAT FROM THE ASSETS? STATE OF THE ASSETS PERFORMANCE AGAINST TARGET OVERVIEW RISK MANAGEMENT ASSET LIFE CYCLE PLAN NETWORK DEVELOPMENT PLAN NETWORK PERFORMANCE ENHANCEMENT CAPITAL EXPENDITURE OPERATIONAL EXPENDITURE FINANCIAL ASSET MANAGEMENT IMPROVEMENT INFORMATION SYSTEMS SERVICE PROVISION STRATEGY PROJECT MAPS KEY DEFINITIONS SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

3 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021 1

4 EXECUTIVE SUMMARY Welcome to the 2012 edition of our Summary Asset Management Plan (AMP). This Summary AMP outlines the key points, that we consider relevant to interested parties, from Powerco s full AMP. It is intended to provide a starting point for discussions with key stakeholders and generate increased feedback on the vital service Powerco provides. The full AMP is an important part of Powerco s planning and investment framework. It describes for our customers, shareholders, employees and partners how we will manage our electricity distribution network to deliver the standards of reliability of electricity supply that our customers demand and the commercial performance that our shareholders expect. The AMP is a technical document that sets the context for the annual investment we believe is necessary to maintain the performance of existing network assets and to provide future capacity and security through investment in new assets. The programmes of work identified in the AMP are based on our current understanding of customer and stakeholder requirements, and our knowledge of the existing and projected condition and performance of the assets on our networks. The 2012 AMP covers a planning period from 1 April 2012 to 31 March However, our main focus is on ensuring that our work programmes for the next three to five years are clearly defined and form part of a longer-term asset strategy. Each year, a comprehensive update of the plan is completed to reflect changes on the network, new technologies that are available and work we have undertaken during the year to develop a better understanding of the overall health of our assets. The updated AMP also reflects independent feedback we have received on our Asset Management methodologies from the Commerce Commission and its expert advisors. Our ultimate aim is to optimise the life-cycle costs of our assets whilst meeting agreed service targets and future demand requirements at an acceptable level of network risk what we term achieving a steady state level of efficient asset investment. However, as a regulated supplier of electricity services, we have to work within the realities of a regulatory price cap, and so achieving everything that is identified in the plan is not always possible and, in some cases, we are required to apply a risk-based prioritisation approach to our investments. We consider this to be an acceptable approach as long as this doesn t erode our operating headroom and ability to manage the on-going risk of adverse network performance and/or result in grossly inefficient cost outcomes. Powerco has a constructive relationship with its economic Regulator, the Commerce Commission, and where we believe long-term investment requirements may be compromised by the current regulatory allowances we will discuss this with them. We believe our AMP is an important starting point for engaging positively with the Commission and its advisers to ensure long-term investment levels remain appropriate. Whilst being primarily a document developed for Powerco s own planning purposes, publication of the AMP also satisfies the regulatory requirement to disclose details of our Asset Management methodologies, in accordance with the Electricity Disclosure Handbook 2004 (as amended 2008). Asset Strategy and Context for the 2012 AMP Powerco understands that good Asset Management underpins the ability of our networks to deliver both supply quality and security, and value for consumers. We refer to Asset Management in this context as the co-ordinated policies and practices through which we acquire, analyse and review information on our assets, assess future network requirements and deliver cost-effective and safe investment in our network. An important element of our Asset Management practice is a focus on continuous improvement and, to this end, we have recently assessed our practices against the criteria in the International Infrastructure Management Manual and using the Asset Management Maturity Assessment Tool prepared by Parsons Brinckerhoff NZ for the Commerce Commission. The results, whilst identifying some areas for improvement, mainly in relation to data capture and information systems, were on the whole positive. From a strategic perspective, we are seeking to extend our planning horizon out to 20-plus years to make more explicit the company s strategy for delivering outputs and meeting demand over the long term. 2 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

5 Our focus to date, on effective Asset Management has enabled the company to deliver strong outcomes for our customers over recent years. We have established the company as a low-cost operator in comparison with our peers in New Zealand, whilst maintaining a stable operating performance overall, which also benchmarks favourably. Ultimately, this has flowed through to lower prices for customers. Central to our strategy of containing costs has been the introduction of processes to optimise expenditure on our networks, within the regulatory allowances and to the level where returns to the company s shareholders are considered acceptable. However, whilst our headline network performance and the reliability of supply experienced by our customers (when taken in aggregate), has been broadly stable over recent years, our analysis indicates a slow but observable deterioration in asset condition and an increase in the average age of assets on certain parts of our network. Perhaps, not surprisingly we are starting to observe a correlation between declining reliability performance and the health and age of our assets at these localised network hot spots. Left unchecked, we anticipate this declining performance trend will continue, resulting in an unacceptable level of supply interruption to our customers. As we set out in the full AMP, there are a number of short-term initiatives and investment decisions that we can apply to target interventions at the worstperforming parts of our network, but increased levels of investment will almost certainly be required in the longer term to redress this adverse performance trend. However, as our customers, through increased prices, will ultimately fund investments, we believe it is important that the case for increased expenditure is well articulated, fully justified, and completed with appropriate consultation with our customers and the Regulator. We will be progressing this work over the next 18 months. The full AMP provides more details on the issues discussed here. It also describes in detail our plans for addressing each issue. We look forward to discussing our plans with you. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021 3

6 POWERCO AND THE New Zealand ELECTRICITY INDUSTRY To provide relevant feedback on Powerco s AMP, it is vital that any interested parties understand the structure of New Zealand s electricity industry and Powerco s role in it. This country s electricity industry has undergone considerable structural change over the past 14 years as the Government has worked to promote competition, reliability and fair prices for consumers. As part of the distribution sector, Powerco sits midway along the supply chain. It contracts with Transpower for transmission services and with generators embedded in our networks. At present, we do not sell electricity we own and operate the infrastructure that delivers it from the National Grid to individual homes and businesses. Our main customers are energy retailers with whom we have wholesale use of system agreements. We invoice retailers for the cost of our services, which comprise delivery (including transmission) charges, and maintaining and upgrading the distribution network. Retailers bundle up the cost of our services, along with their own services and those of generators, into customers monthly electricity bills. Retailers, which compete for customers, set the overall price for the end-consumer. The different sectors of the industry are described next. 4 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

7 Figure 1: Sectors of the New Zealand Electricity Industry 1. Generation 2. Transmission 3. Distribution 4. Retailing 5. Consumers Generators, as the name suggests, are the companies that generate electricity in power stations. Generators are also entitled to sell electricity to consumers and energy retailers. Numerous generation sites around the country supply electricity to the National Grid. Transpower owns and operates the National Grid, which comprises pylons, high-voltage cables and switchgear for transmitting bulk electricity from generation sites to distributors. Transpower transmits electricity from generating stations to 178 Grid Exit Points (GXPs) around New Zealand. These GXPs are the points of supply for distribution networks like Powerco s. At the GXPs, electricity is transformed to lower voltages then distributed to end-users via overhead lines and underground cables by local distribution (lines) companies. There are currently 29 distribution companies, which operate within set boundaries and range from publicly listed companies to community-owned trusts. The 1998 Electricity Reform Act required full ownership separation of distribution businesses from energy (retail and generation) businesses, preventing Powerco and other lines companies from participating in the retail or generation sectors. The Electricity Industry Bill 2009 allows distribution companies to once again participate in the retail and generation sectors, subject to strict controls. Retail companies sell delivered electricity to end-consumers. Retailers bundle up the costs from the other sectors of the industry, along with their own costs to run a retail business, and provide electricity consumers with a monthly bill. They set the final price consumers pay for electricity. These companies are also allowed to participate in the generation sector. Residential and business consumers buy delivered energy from retail companies. Large industrial and commercial consumers also purchase electricity from retail companies but may also have the option of contracting directly with distribution companies for electricity distribution services. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021 5

8 OUR ELECTRICITY NETWORK Powerco is New Zealand s second largest electricity distributor in terms of customer connections and largest in terms of geographical area covered and the length of our network. We own and operate a large network of electricity distribution assets that, over the last year, delivered 4652 GWh of electricity through approximately 30,000km of lines and cables to more than 319,000 consumer connections. Powerco s networks supply electricity to a diverse range of communities and consumer types, from major provincial centres with highly interconnected CBD networks, through to remote rural communities; from large industrial plants to small back-country shearing quarters. Powerco s networks cover Thames-Coromandel, Hauraki, Tauranga and Western Bay of Plenty, Matamata Piako and South Waikato (collectively known as our Eastern Region) and Taranaki, Whanganui, Rangitikei, Manawatu, Tararua and Wairarapa (collectively known as our Southern and Western Regions). OPERATIONS Electricity Networks Electricity distribution networks in the Tauranga, Thames, Coromandel, Eastern and Southern Waikato, Rangitikei, Taranaki, Whanganui, Manawatu and Wairarapa regions. Figure 2: Powerco Electricity Network Operations Map 6 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

9 ASSETS COVERED The full AMP, to which this summary refers, provides detailed information on Powerco s fixed electricity network assets. The following graphs and table provide a summary of the assets covered. 2,500 Replacement Cost by Asset Category Electricity Network Replacement Cost by Asset Type $million Replacement Cost ($m) 2,000 1,500 1, Overhead Underground Transformers Switchgear Substations 200 Asset Category Assets Valued at ODV Replacement Cost Assets Valued at Current Replacement Cost Overhead Line Underground Cable Distribution Transformers Distribution Switchgear Zone Substations SCADA/Comms/Ripple Spares (Emergency & Critical) Figure 5: Replacement Cost by Asset Category Table 1: Key Network Statistics Figure 3: Electricity Network Asset Replacement Cost by Asset Type Southern & Key Network Statistics as at 31 March 2012 Eastern Western Total Length of Overhead Circuit (km) 7,679 14,644 22,323 Electricity Network Replacement Cost by Function 1, Length of Underground Circuit (km) 4,407 3,192 7,600 Subtransmission Circuit Length (km) 592 1,011 1,603 Distribution Circuit Length (km) 5,828 10,780 16,609 Low-Voltage Circuit Length (km) 5,667 6,044 11,711 $million Number of Zone Substations and Switching Stations Zone Substation Transformer Capacity (MVA) Distribution Transformer Capacity (MVA) 1,418 1,548 2,967 0 Subtransmission Zone Substation & GXP Protection & Control Distribution Distribution Substation Low Voltage Spares (Emergency & Critical) Figure 4: Electricity Network Asset Replacement Cost by Functional Category (2004 ODV) SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021 7

10 THE ASSET MANAGEMENT PLAN AND PROCESS With Powerco s electricity network assets ranging in age from new to more than 50 years old, effective long-term planning is a fundamental requirement of our business. Our AMP is an integral part of that planning because it not only explains Powerco s management and maintenance policies, but also sets out our plans for focused investment in security, capacity and reliability of an ageing network that is facing constantly rising levels of demand. This means Powerco has increasing investment requirements as assets progressively reach the end of their useful lives. The full AMP contains specific details on Powerco s short- and long-range planning for network development, renewal and maintenance. In other words, the AMP is a high-level document providing management, stakeholders and any interested parties with a broad overview of Powerco s asset management policies, asset details, service levels, capital and maintenance works planning, expenditure forecasts, risk management and performance evaluation. Incorporating information from a range of other internal documents, the AMP sets out the performance criteria for the assets, and summarises the actions needed to achieve those performance criteria. Developing the AMP is a key step in ensuring that the needs of all stakeholders are properly considered and incorporated into Powerco s long-term Asset Management strategies. It also ensures that plans provide, subject to any regulatory constraints, the optimum balance between levels of service and the efficient costs to provide the required service. Figure 6 illustrates the structure of the full AMP and what each section is trying to address. Who wants what from the assets? What is the state of the assets? Section 2 Define Stakeholders Define AM Drivers Section 3 Describe Assets What performance are we targeting from the assets? How are we doing vs. the target? What are the gaps? Section 4 Set Performance Targets Section 5 Performance Evaluation Section 6 Analyse Network Risks How are we managing the network and solving any performance gaps? Section 7 Set Asset Life Cycle Strategy Analyse Renewal Needs Section 9 Reliability, Safety, Environment Enhancement Needs Protection & Control, Smart Network Development Figure 6: Structure of Asset Management Plan Section 8 Security Criteria Prepare Load Forecasts System Growth Needs What does this mean for the works programmes and required expenditure? Section 7, 8 and 9 Develop Work Programmes Linked with AM Driver Section 10 Set Expenditure Forecasts How can we improve? Section 11 Develop AM Improvement Initiatives 8 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

11 PURPOSE OF THIS SUMMARY AMP Electricity distribution networks and the Asset Management processes that drive them are very complex. Therefore, a huge amount of information is required to compile a thorough AMP. This complexity and level of detail can act as a barrier to providing feedback for some parties, due to a feeling of information overload. Powerco recognises this and that is why we have produced this Summary AMP, which is intended to identify the key issues relevant to the majority of interested parties. Anyone interested in Powerco s AMP or operations in general is encouraged to read this summary to learn more about our business and what we are trying to achieve on behalf of all our stakeholders. If further information is required, Powerco s full AMP is available at: Please note, this Summary AMP is intended to be consistent with the full AMP published in April Therefore, commentary, figures and dates contained within this Summary AMP reflect those from the published date for the full AMP. HOW TO PROVIDE FEEDBACK Powerco provides a vital service to your community. Therefore, it is vital that you have your say on the service we provide. We welcome feedback on this Summary AMP, our full AMP, or any aspect of our business or the electricity industry. Feedback can be provided in the following ways: By yourview@powerco.co.nz By telephone: 0800 POWERCO ( ) By post: Consultation Manager C/- Powerco Ltd Level 2, 84 Liardet St Private Bag 2061 New Plymouth 4342 PROCESS OVERVIEW The Asset Management process requires that electricity is provided at the most efficient cost. This is a process of many parts, including: Strategy Long-term strategic direction for the management of the assets and the business operations. This is the key interface for customer consultation and corporate strategy. Planning This process involves planning for the renewal, development, maintenance and operation of the assets. Service provision This involves the delivery of construction, maintenance and operating services on the network assets. Network operations This involves the management of the real-time operation of the network, recording network outages and approving planned outages and access to the network by service providers. Information This involves the maintenance of, and reporting from, the asset information databases. There is, of course, extensive and constant interaction between these processes, and with corporate, customer and regulatory management teams. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021 9

12 ASSET MANAGEMENT STRATEGY OVERVIEW At its highest level, the Asset Management process seeks to find and optimise the most efficient trade-off between cost, service and risk. By minimising the costs, the asset manager may compromise on asset performance and asset risk; by minimising the asset risk, service performance may be compromised and costs increased. These three areas are intrinsically linked and the asset manager seeks to achieve the appropriate balance between them. This is represented in the following diagram. Powerco s AMP identifies and provides details on the following key electricity Asset Management-related strategies: 1. Renewal and modernisation: Modernisation of the network involves the replacement and updating of our aged assets to reduce the risk of asset failure, which can result in interruptions to supply. Powerco s required renewal expenditure is forecast to trend upwards as the wave of assets installed between the 1950s and early 1980s approaches end-of-life. Figure 8 shows the increase in forecast renewal expenditure. Asset Renewal Capital & Operational Expenditure If too much focus is put on one of these areas, the other two areas will be compromised COST NETWORK ASSETS LEVEL OF RISK Nominal Expenditure ($000) PERFORMANCE LEVELS A 2007 A 2008 A 2009 A 2010 A 2011 A 2012 B Asset Replacement and Renewal 2013 F 2014 F 2015 F 2016 F 2017 F Refurbishment and Renewal Maintenance 2018 F 2019 F 2020 F 2021 F 2022 F Year (ending June) Figure 8: Actual and Forecast Asset Renewal Capital and Maintenance Expenditure Figure 7: Cost, Performance and Risk Balance 10 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

13 2. Increasing the redundancy (duplication) of the core network: Redundancy means that if one critical component fails or needs to be taken out of service, there is another component ready to continue supply. This includes increasing zone substation capacity and installing more network automation. Powerco has identified the potential for 17 zone substations to be built and 20 additional transformer banks to be installed at existing substations over the next 10 years. 3. Standardising systems and processes: This is a key strength of Powerco s employees and a significant focus for management. Powerco has developed a common maintenance management system and an integrated, easily accessible suite of information systems. There has also been continuing development of design, construction and maintenance standards, which lead to lower risk profiles in the network and less reliance on field staff. Further investment in the standardisation of systems and processes will allow us to extend asset lives. 4. Management of public safety: Electrical equipment is capable of causing serious harm or death so safety is of utmost importance to Powerco. Safety performance enhancement is to a large extent workforce-related, and is about fostering safety-focused leadership and culture within both Powerco and its contractors. Most of the safety initiatives described in the full AMP are, therefore, people-focused rather than network equipment-focused. Nevertheless, some network projects are centred on eliminating safety hazards. Safety enhancement programmes are driven from a variety of perspectives and sources. They are generally approached with risk-based techniques. Powerco has an established Health and Safety Plan and its purpose is to document the proposed pathway we will take to execute and improve all areas of our Health and Safety performance. The main areas of focus are: Committed safety leadership; Business-wide safety culture; and Continuous improvement of safety systems. 5. Distribution automation and more interconnections at feeder level: Smart network plans, which are a recent addition to Powerco s AMP, aim to be self-healing and capable of shifting the load from peak times. They are something to which regulators in many countries are now paying greater attention because they are perceived to offer customers improvements in performance and cost. Smart networks, which offer flatter, more manageable patterns of demand, fit well with Powerco s business plan objectives of improving reliability through automated solutions, and managing increasing investment profiles through non-asset solutions. 6. Continuous improvement and optimisation of our inspection and maintenance standards: Powerco s Network Standards set the requirements for the design and construction of equipment. Our standards also set out our requirements for maintenance inspections and servicing, and guidelines for the overhaul of equipment. The standards reflect the range of different contractor drivers in place across Powerco s network as well as a need to prevent corner-cutting, while not disallowing new ways of doing things. The standards and policies follow a continuous improvement process whereby the standards are challenged as they are used. Input to the standards preparation and update process can arise during semiregular standards road shows, through the field work audit process or if anyone has a new idea that should be tried out. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY

14 WHO WANTS WHAT FROM THE ASSETS? The following figure illustrates the relationship between Powerco s main stakeholders, their drivers and the Asset Management process. The diagram now includes a recognition of the business planning process as the stakeholder drivers are equally (and in some cases more appropriately) applicable to the business planning process. Customers/ Consumers Service/Price Safety Load Growth Government & Regulator Economic Efficiency (Long-Term Interest of Consumers) Environmental Safety & Compliance Owners & Lenders Long-Term Value (Productivity & Utilisation) Risk Management Employees & Contractors Safety Workflow Certainty Market Costs Various media communication channels, such as newspaper and radio advertising and Powerco s website. In addition to the above, Powerco has a Consultation Manager dedicated to planning and co-ordinating consultation activities and maintaining relationships with key stakeholders. Feedback obtained through consultation is incorporated into Powerco s Asset Management planning to help ensure Powerco s plans are aligned with consumer and stakeholder expectations. We ensure this happens by involving a wide range of Powerco people in customer consultation, including engineers, key decision-makers and business leaders. This way, consumer feedback goes directly to the people who are able to act on it. Business Planning Process Asset Management Process Development, Renewal, Maintenance, Operation Asset Performance Asset Age/Condition Assets Figure 9: Asset Management Process Stakeholders and Drivers Powerco uses a range of best-practice methods to undertake consultation and to identify stakeholder interests, including, but not limited to: Key Account Managers assigned to liaise directly with large or industrial consumers. Consumer surveys conducted at events like the Mystery Creek and Central Districts Agricultural Field Days. Surveys are designed to help Powerco understand if consumer expectations about the quality of their electricity supply are being met. Attendance of Powerco staff at these events also provides consumers with an opportunity to discuss any concerns they may have directly with Powerco. Workshops and focus group-type meetings with regulators, consumers and consumer representative groups. Powerco Chief Engineer Michael Whaley responds to a question at a consultation with members of the Taranaki Chamber of Commerce. Also on hand from Powerco to listen to consumer feedback were (from left to right) Planning Manager Peter Armstrong, Regulatory Manager Charlotte Littlewood and Network Operations Manager Phil Marsh. 12 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

15 Figure 10 below illustrates the influences of the various drivers affecting the total amount spent on the network over time. Network Spend Long-term Shareholder value Productivity Regulated Revenue Utilisation Asset Age, Condition & Configuration Renewal Service Development Load Growth Safety O&M Environmental Indirect Costs Market Costs For Work Risk Mgmt Asset Management Process Time Figure 10: Illustration of the Influence of Asset Management Drivers Powerco Performance Engineer Ken Pattie discusses Powerco s BasePower solution for remote rural consumers at the Whanganui River settlement of Matahiwi. The diagram reflects the current situation, which can be summarised as upwards pressure on network spend through: The required level of service. Load growth. Safety, environmental and other regulatory compliance obligations. The market costs for field work activities. The current attributes of the network, i.e. asset age, condition and configuration. The drivers that place downwards pressure on network expenditure are: Powerco s commercial driver to achieve long-term sustainable value for its shareholders, which (in this context) is reflected in utilisation and productivity drivers. The regulated revenue, namely the allowable revenue and form of control. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY

16 At a strategy level, constraints, Asset Management drivers and the needs and interests of various stakeholders are evaluated and considered as part of the corporate planning process. These are all applied during the network planning process. It must be recognised that, with such a wide range of stakeholders, their drivers and needs will also vary widely. For example, Powerco s consultation to date indicates that most consumers wish to see reliability and quality standards improve or remain at present levels but do not wish to pay more for electricity overall. However, maintaining or improving standards requires a greater level of investment due to an ageing network and load growth. By restricting Powerco s revenue through priceconstraining regulation, Regulators seek to put downwards pressure on electricity prices. The regulation is limited in its effectiveness in constraining overall retail prices because the majority of a retail electricity bill is made up of components that are outside Powerco s control. However, it does have a large impact on how much Powerco is able to invest back into the network at the same time, Powerco must continue to maintain reliability and quality standards while still making a fair return to investors. As such, Powerco seeks to operate an efficient business and to ensure regulatory consistency, predictability, transparency and accountability to help lower perceived investment risk, thus allowing for investment at appropriate levels required to achieve the optimal balance of all stakeholder expectations. It is at the strategy level where the best overall balance between these drivers and needs is sought. At a tactical and operational level in the network planning process, the investment policy and Asset Management strategy is shaped by Powerco s multi-stakeholder assessment process. This process is a key part of the way in which network development and renewal programmes are formed. Powerco faces a constant balancing act to ensure the needs of consumers and stakeholders are met at the optimal levels of price and quality. Feedback from electricity retailers and consumers is essential in ensuring we achieve the best possible balance for the widest possible range of stakeholders. To help achieve the optimal balance, projects are assessed using a multi-stakeholder optimisation process (known as Coin Optimiser), whereby the projects are reviewed against a set of four strategic objectives. The primary objectives of the optimisation process are: To provide a consistent approach to the development of capital works programmes that balances (potentially conflicting) stakeholder requirements; To eliminate (or mitigate) any high risks to public safety, network performance, customer outcomes, public relations, or employee engagement; and To maximise the strategic value of the portfolio of projects that make up the capital works programme. Further details on the optimisation process are set out in Section 2.5 of the full AMP. 14 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

17 STATE OF THE ASSETS The age profile by replacement costs of the entire infrastructure asset base (on current replacement costs) is presented as a nine-year moving average and is shown in the diagram below. Replacement Cost ($m) Total Asset Replacement Cost vs Age Year of Original Commision (Years) Substations Switchgear Transformers Underground Overhead Figure 11: Total Asset Age Profile. Condition monitoring shows that the assets are generally in the condition expected of their age ODL PERFORMANCE AGAINST TARGET OVERVIEW Table 2: Current Electricity Asset Performance Electricity Measure Measure (2011) Target for 2013 Commentary Network reliability (SAIDI) Network reliability (SAIFI) Customer density Average consumption Direct operating costs min/ customer (actual) min/ customer (excluding major storm events) 2.62 interruptions/ customer (actual & excluding major storm events) <210 min/ customer (excluding major storm events) <2.8 interruptions/ customer (excluding major storm events) We believe that the static SAIDI numbers are masking an underlying deterioration in performance at certain locations and within specific asset groups. Left unchecked and in the absence of increased investment, we expect further deterioration in performance in these hot spot areas over time See above 10.7 ICPs/km N/A Urban/rural mix, below weighted industry average 14.6 MWh/ICP N/A Low (presenting growth opportunity). Benchmarking weakness $1146/km $1310/km Efficient spend but we are becoming increasingly concerned with the adequacy of the operating expenditure Capex spend $2666/km Benchmark on information disclosures Asset investment Efficient level of spend, around the median for the industry. $4128/ICP $4500/ICP Efficient, especially when compared to similar density distribution companies Load factor 66% 65% High load factor, good spread of customer load Zone substation capacity utilisation Security 51% 40% Higher than target utilisation. Indicates investment needed in zone substation capacity Substation and feeder security N/A Generally appropriate. Standards are commensurate with load. Increasing need for investment in subtransmission lines Asset condition years average age Asset condition reports N/A Asset condition well monitored. Appropriate asset condition commensurate with age, but increasing investment profile SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY

18 Performance looks at the consumer-related service requirements, and the confirmation of these requirements through the consumer consultation process. It then looks at the ways in which economic efficiency is assured in the Asset Management process, contractor performance, safety performance, environmental matters and statutory compliance. The targets also take into account the type of assets used across our network, and make comparisons with other New Zealand lines companies with the same customer density and ratio of overhead to underground construction. They also consider past planning practice, economic factors, recognised international best practice and safety. Powerco achieves a balance between owner requirements and legislative, regulatory and consumer expectations in setting these performance criteria. The levels of service adopted by Powerco for its Asset Management Plan are based on the internationally recognised measurements, SAIDI, SAIFI and CAIDI (which are acronyms for formulae covering the duration and frequency of power outages, and their customer bases) and accepted New Zealand lines companies best practice. Powerco conducts an extensive Customer Communications Programme to verify that performance targets match consumer and stakeholder expectations. Consumer consultation is a requirement of the Commerce Act (Electricity Distribution Thresholds Notice 2004). The primary intention of this requirement is to ensure distribution businesses effectively consult with, and take into account, the views of their customers and stakeholders. Regardless of regulatory requirements, Powerco views consumer consultation as common sense essentially, our job is made easier if the communities in which we operate understand who we are and how our business operates. In addition to Powerco-initiated consultation, a database is kept of all complaints and suggestions registered by its customers through Powerco s call centre. These complaints are mapped by type for later reference in planning activities. Economic efficiency is an important driver for maintenance, renewal and development work. A large proportion of repair work, refurbishment and asset replacement work is undertaken only after economic analysis to determine the most cost-effective solution. This frequently involves the choice between replacement and continued maintenance. Safety is a critical driver of the Asset Management process. Electrical plant and equipment are capable of causing serious harm. Measures must be taken to ensure, as far as practicable, the safety of employees and the public. To this end, the network must be maintained in a way that meets statutory requirements, follows good engineering practice, and is considered safe in accordance with recognised industry standards. Safety is determined by a combination of: Asset design; Maintaining the assets in a safe condition; Safe operating and work practices; and Statute: The Electricity Regulations, Electrical Codes of Practice and the Australian/New Zealand Standard Wiring Rules. There is also the Safety Manual Electricity Industry (SM-EI), which contains the framework for Powerco s safety-related network operation. Powerco has now implemented its network operating procedures to comply with the requirements of SM-EI. Additionally, there are the Building Act, the Health and Safety in Employment Act, the Hazardous Substances and New Organisms Act 1996, and various guides set out by the Electricity Engineers Association. Powerco has adopted the practice of working as a reasonable and prudent operator to guide safe Asset Management practices. Its health and safety policy and procedures are set out in documents in the Powerco Business Management System. Contractors can receive instructions from the Contracts Works Manual and the Network Operations Manual, both of which are new initiatives that operate with online search applications. The company carries out a policy of auditing its contractors for health and safety compliance, along with their quality of workmanship. Health and safety audit breaches are divided into major and minor. We have a focus on continual improvement on health and safety and have a target number of zero major breaches. 16 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

19 RISK MANAGEMENT A large part of the Asset Management process involves managing risks associated with the assets on behalf of our stakeholders. For example, public safety risks may arise due to inadequately secured equipment, risks of unexpected supply outages may arise due to inadequately trimmed trees, or there could be inadvertent breaches of legislation. Powerco s Board and management are committed to maintaining a business environment that demonstrates good corporate governance practices. Risk management is therefore an integral part of Powerco s business to support effective decision-making and provide assurance. The aim of the risk management programme is to identify and understand the likelihood, consequence, control effectiveness, and action plans required to make risk levels acceptable. The risk management programme is supported by Powerco s corporate insurance programme, which includes low-probability and high-impact events. Our approach to risk management is aligned to the new AS/NZS ISO 31000:2009 standard for risk management. More in-depth details on Powerco s risk management programme are provided in Section 6 of our full AMP. This section on risk management has now been moved to the middle of the AMP from being at the end. This reflects our view that the management of risks is central to the Asset Management process, rather than being simply an output. ASSET LIFE CYCLE PLAN As Powerco s network continues to age, more investment in renewal and maintenance is required to maintain current reliability levels. Powerco is spending less on asset renewal than what asset age profiles indicate should be spent; however, this must be viewed in the context of regulated allowable revenue. The required increase in replacement costs is demonstrated in the following figure. Replacement Cost ($m) All Assets Replacement Profile ODV Replacement Cost (June 2011 quantities in $2004 terms) Year of Replacement (FY) Current Replacement Cost (including capital efficiency factor) 9 year rolling average, Current Replacement Cost (including capital efficiency factor) 50 Year Average Current Replacement Cost (including capital efficiency factor) Renewal Budget (Real $2011) Figure 12: Total Network Asset Replacement Profile A number of renewal projects are described in the maps that follow in this Summary AMP. The maps show the major projects Powerco wishes to undertake prior to application of the multi-stakeholder assessment process described earlier. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY

20 Maintenance Work Types Powerco s maintenance work comprises the following elements: Maintenance management and maintenance planning; Routine inspections and condition assessments; Routine servicing; Non-routine servicing (overhauls); Fault first response, callouts; Asset relocations (where an asset is simply moved and not replaced); Evaluation of inspection and condition-monitoring results to determine any maintenance or renewal requirements (this may be performed in the field at the time of inspection/condition-monitoring or later by engineering staff); Evaluating faults to predict maintenance or renewal requirements; Performing corrective maintenance or renewal as a result of the above; and Service disconnections. Asset Renewal Strategic Themes Powerco s scheduled asset renewal strategy encompasses three main themes, each of which is appropriate for the different asset types. A run-to-failure strategy is applied to assets where the consequences of failure are not major and where the costs of on-going condition-monitoring may outweigh the costs of failure. This strategy is applied to equipment such as small pole-mounted distribution transformers, underground distribution feeder cable spurs, LV cables, expulsive fuses and surge arresters. A risk- and condition-based replacement strategy is applied where there is a significant implication due to failure, such as major health and safety risks, significant reliability of supply consequences or a major expense in repair. This strategy is applied where on-going condition inspections are needed to comply with regulations or where the costs of condition-monitoring are small compared with the costs associated with failure. It is applied to equipment such as poles, cross-arms, important distribution feeder cables and zone substation transformers. An age- and obsolescence-based replacement strategy is applied to assets with a high level of technical complexity or a high level of interconnectedness with other network assets (that is, the operation of a system as a whole is dependent on the integrity of several assets). It includes the need to replace equipment because of the availability of spares, or for standardisation or changes in technology. This strategy is applied to equipment such as zone substation switchgear, SCADA equipment and protection relays. Reactive renewal strategies are based around the need to renew assets that have failed and need to be replaced in a short time or to renew assets with a high imminent risk of failure. Asset Renewal Forecasting Process The most accurate means of forecasting renewal needs for the network is through knowledge of the condition of the assets. A condition-based renewal programme is the most accurate for a period of around one to five years. Beyond this, renewal forecasts are best made using age profiles. Renewal forecasting involves determining the quantity of assets needing renewal (renewal tasks) and the unit costs per renewal task. The forecast renewal expenditure equals the product of these two factors. The asset condition information is presently being compiled in the Maintenance Management system, and so the full extent of condition-based renewal needs is still in progress. Estimates of condition-based renewal forecasts, calculated on the information available, have been entered into Powerco s Improvement Register and an extract of the renewal expenditure needs from this is given in Section 10 of the full AMP. Life-Extension Practices Various life-extension techniques have been tried by Powerco, but apart from transformer refurbishment, these really apply to only specialised assets, and many of the techniques have had only limited degrees of success. Redeployment, Upgrade and Disposal of Existing Assets Powerco is presently developing its policy on reusing second-hand materials, such as poles and conductors, and rotables, such as transformers. Powerco is also updating its disposal policies in line with its Environmental Strategy. It is not envisaged that any major network assets will need disposal that would have environmental consequences during the period covered by the full AMP. 18 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021

21 NETWORK DEVELOPMENT PLAN The network security criteria describe the factors considered when preparing the long- and medium-term development plans. Load forecasts are presented and these, along with the security criteria, culminate in the capital works programme for development. Powerco has a range of development plans for different categories of equipment and customer bases. Network security of supply is a measure of the resilience of the network to operational changes, such as planned outages (e.g. those required for maintenance), and unforeseen events (e.g. forced outages, such as those caused by equipment failure or storms, as well as unexpected customer loads). The ability of the network to accommodate unforeseen events is a factor that can influence reliability of supply, somewhat akin to a network balance sheet. Powerco s security of supply criteria have been set taking into account the Electricity Engineers Association s Security of Supply Guidelines and the report, entitled Interaction between Transmission and Distribution System Planning from the CIGRE/CIRED Working Group, as well as the findings of the customer communications process. Load forecasting for the purposes of the Asset Management process is based on growth in peak-time demands. Peak requirements need to be understood to determine the required capacity of a lines infrastructure that will support local load growth. The most significant influences on demand growth continue to result from changes in population and household composition, and the growth or relocation of industry. Internal migration patterns thus have a strong influence on the observed demand growth. Government initiatives to promote energy efficiency and the preference for renewable sources of energy have been considered in preparing the forecast growth. Known industry changes such as oil and gas exploration and development; primary sector changes; and infrastructure, such as ports account for step changes seen in forecasts. The establishment of major new industries can have a considerable impact within a short time on the level of demand experienced in any given locality. The possibility of new spot loads is monitored through Key Account Managers, Resource Management Act notifications and consumer consultation. SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY

22 NETWORK PERFORMANCE ENHANCEMENT Powerco s network enhancement plans encompass: Reliability improvements, which take into account feeder reliability performance, historical trends and plans for automation; Protection and control developments, including SCADA, load control and metering; Environmental performance and improvement; Safety performance enhancement; and Smart network implementation. The network enhancement processes are driven by several of the big picture strategic themes of renewal and modernisation, automation, safety management and smartening the network. The major network enhancement projects Powerco wishes to undertake are described in the maps that follow in this Summary AMP. All network enhancement projects will also go through the multi-stakeholder assessment process. CAPITAL EXPENDITURE Capital expenditure (capex) is the budget used to create new assets or to increase the service performance or potential of an existing asset. The forecast total capital expenditure to FY2022 is shown in the graph below. Nominal Expenditure ($m) Total Network Capex 2006 A 2007 A 2008 A 2009 A 2010 A 2011 A 2012 B 2013 F 2014 F 2015 F Financial Year 2016 F 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F Figure 13: Total Network Capital Expenditure Capital budgets, under the categories of System Growth, Reliability, Safety, Environment and Asset Renewal, are monitored at the end of every month and budget re-forecasts are made quarterly. A portion is set aside for reactive or unforeseen work, such as equipment failure or storms. Under- or over-spend in this category is accommodated by juggling other projects in the capital programme. Allowance is also made for opportunities to purchase land for future zone substation sites or easements for lines. In our experience, gradual land- or easement-banking, as the opportunities arise to a well-thought-out development plan, is a more efficient way of developing the network than an urgent short-term focus. 20 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 FY2021