Disclaimer: The information in this document has been prepared in good faith and represents Powerco s intentions and opinions at the date of issue.

Transcription

1 ASSET MANAGEMENT PLAN 2013

2 Disclaimer: The information in this document has been prepared in good faith and represents Powerco s intentions and opinions at the date of issue. Powerco however, operates in a dynamic environment (for example, the changing requirements of customers, deteriorating asset condition and the impact of severe weather events) and plans are constantly evolving to reflect the most current information and circumstances. As a result, Powerco does not give any assurance, either express or implied, about the accuracy of the information or whether the company will fully implement the plan or undertake the work mentioned in the document. None of Powerco Limited, its directors, officers, shareholders or representatives accepts any liability whatsoever by reason of, or in connection with, any information in this document or any actual or purported reliance on it by any person. Powerco may change any information in this document at any time.

3 CONTENTS 1 1 EXECUTIVE SUMMARY Purpose of the Document Key Challenges The Structure of the 2013 AMP Operational Context Our Assets Network Performance and Levels of Service Our Asset Management Framework Key Drivers of Expenditure Forecast Capex and Opex Asset Management Improvement Conclusion INTRODUCTION Purpose and Objectives of the Plan Overview of Powerco Powerco s Vision, Mission and Values Powerco s Stakeholders Approach to Asset Management Key Assumptions of the AMP Structure of the Plan POWERCO S ASSETS Introduction Network Overview Area Network Descriptions Asset Fleet Summary Powerco s Customers and Service... Levels Historical Performance OBJECTIVES Introduction Background Safety Reliability Asset Stewardship Cost Efficiency Summary of Objectives and Measures GOVERNANCE AND DELIVERY Introduction Responsibilities for Asset Management Asset Management Governance Strategic Direction Planning Delivery Non-Network Project Governance and Management Risk Management Contingency Plans MAINTENANCE AND RENEWAL Introduction Approach to Maintenance and Renewals Fleet Plans Subtransmission Fleet Plan Zone Substation Fleet Plan Distribution and LV Overhead Lines Fleet Plan Distribution and Low-voltage Underground Cables Fleet Plan Distribution Substations and Transformers Fleet Plan Distribution Switchgear Fleet Plan Other System Fixed Assets Fleet Plan Non-network Assets Fleet Plan Reliability Projects Summary Network Safety Improvements Maintenance Strategy Renewal Strategy Operation Strategy Integration of Renewal and Growth Drivers Improvements in Maintenance and Renewal Strategy Development NETWORK DEVELOPMENT Introduction Approach to Network Development Area Plans Distribution Development Planning Considerations Non-network Options Asset Capacity Demand Forecasting ENHANCEMENT INITIATIVES Introduction Safety and Environmental-focused Enhancements Asset Stewardship-focused Enhancements Cost Effectiveness-focused Enhancements Business Processes Cost Effectiveness-focused Enhancements - Smart Networks and Automation EXPENDITURE FORECASTS Executive Summary Background Interpreting the Forecasts High-Level Summaries Maintenance Renewal Growth System Enhancement Expenditure Forecast Summaries APPENDICES 1 Appendix 1: Glossary (Key Definitions) Appendix 2: Information Disclosure Schedules 11a-14a Appendix 3: Stakeholder Interests Appendix 4: Major Customers Appendix 5: Subtransmission Maps Appendix 6: Non-Network Assets Appendix 7: Summary of Performance Against 2012 AMP Measures Appendix 8: Physical Works Programme Completion Appendix 9: General Network Risk Issues Appendix 10: Renewal & Maintenance Project Descriptions Appendix 11: Demand Forecast Tables Appendix 12: Subtransmission Feeder & Zone Substation Constraints Appendix 13: System Growth Project Descriptions Appendix 14: Regulatory Requirements Look Up Appendix 15: Compliance Certification

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5 1. EXECUTIVE SUMMARY Purpose of the Document Powerco s networks provide an essential service to the communities we serve and they need to be reliable and sustainable. The electricity distribution infrastructure assets we manage are capital-intensive and have very long lives. Ours is a stewardship role that relies on effective and efficient long-term asset planning and investment. This Asset Management Plan (AMP) outlines our long-term strategy for the electricity distribution services under Powerco s management. The AMP is an essential part of the company s planning and investment framework. It is used throughout the year as the reference point for prioritising and approving work programmes. In addition, the AMP is a useful summary document for us to demonstrate to our stakeholders, including our regulators, customers and end-consumers, the effectiveness of the company s asset management and decision-making processes. The plan covers a period from 1 April 2013 to 31 March 2023, with a particular focus on the work programmes planned for the next three to five years. It reflects Powerco s focus on achieving an optimal balance between the key elements of asset management, which are service levels, cost and risk. As it is a working document, the AMP also describes the areas where we believe our asset management processes, systems and data can be improved. We call this our asset management journey. Our goal is to position Powerco s asset management to achieve leading industry practice, as referenced against PAS55, an internationally recognised asset management standard, within a five-year period Key Challenges Powerco faces a number of asset management challenges. The expenditure forecasts set out in this AMP are based on our responses to these challenges. In summary: Powerco is a company that places a high level of importance on delivering stable prices to our customers and we have a strong history of delivering this outcome. Over the past decade, the annual level of network expenditure has nearly doubled, while average prices have tracked at a rate less than inflation. Our headline reliability performance, as measured by SAIDI and SAIFI, is relatively stable 1. However, indications are that underlying reliability performance at specific locations across our networks is being affected negatively by a combination of deteriorating condition, increasing age and asset model or type-related issues. At current levels of expenditure, the asset stock is progressively maturing (ageing). This is particularly the case for overhead network assets. While age alone is not a justification for investment, it is an effective indicator of asset condition, which 1 SAIDI is a measure of the reliability of electricity supply and stands for System Average Interruption Duration Index. SAIFI is also a measure of reliability but is based on the frequency of supply interruptions. drives the need for asset replacement and maintenance. The upward trend in asset age indicates that asset-related investment may need to increase. The operational margin around our SAIDI and SAIFI quality targets is eroding due to increased faults associated with our deteriorating assets. Parts of our network appear to be becoming more vulnerable to severe weather and exceptional storm events. At current levels of expenditure we are able to manage SAIDI and SAIFI close to the target, but we are unable to build operational margins to provide a buffer against severe weather events. Our on-going analysis indicates an approaching need to lift both opex (maintenance) and renewal expenditure (capex) in targeted areas across our networks in order to begin to reverse the above trends. All things being equal, increased investment will place upward pressure on prices and may need to be approved by the Commerce Commission. Given our focus on delivering a sustainable and cost effective service, we are working hard to minimise the cost impact on customers. Powerco is actively considering applying for a Customised Price Path (CPP), which is a regulatory mechanism whereby the Commission is able to establish a price path for a company based on its own unique (forecast) circumstances. However, before we do so, we will need to further refine our thinking to manage our costs and consult widely with our stakeholders. In the interim, our expenditure projections allow for continued increases in asset investment. During this time we will continue to monitor network performance, further refine our investment strategies and refocus our activities as needed to meet our quality targets The Structure of the 2013 AMP This edition of our AMP has been redesigned and refocused as a key step in our asset management journey. We have refined our asset strategy goals and objectives, refocused and sharpened the asset-related discussions and placed a particular focus on the areas that will have the most impact on our prices over the next decade. There is much we can do to develop our AMP further to support our discussions with stakeholders. However, we hope the changes we have made will make it easier for our customers to understand how our networks are performing, the areas and options that will shape the path of future investment and the nature of the investments we are considering. The new structure of the document is outlined below.

6 4 Figure 1.1: Structure of the AMP. Context and Approach Stakeholder expectations, strategic framework and business drivers. Description of assets. Objective setting. 2 - INTRODUCTION Purpose & objectives Stakeholders strategic alignment, continuous improvement, AMP structure. 3 - Powerco s assets Geographical regions Customer groups Asset information 5 - GOVERNANCE & DELIVERY Governance, planning & delivery Responsibilities, controls & decision making tools 4 - objectives Setting objectives Reviewing performance Gap analysis Appendices Glossary & maps Asset management schedules Asset Management Maturity Tool Detailed information on projects, stakeholders and capacity. WORK PROGRAMME Governance, enablers and controls. Work programmes and expenditure. Improvements. 8 - Enhancement Initiatives Enhancements for safety, environment & compliance and smart networks Information systems enchancements 1.4. Operational Context The Commerce Commission has recently analysed trends in the cost and reliability performance of each electricity distribution business in New Zealand, including Powerco. A summary of Powerco s performance measured across a range of activities, over the period 2008 to 2011 and relative to the industry average, is set out in Table 1.1 below. Table 1.1: Our relative performance compared with the NZ distribution sector. Powerco s Relative Performance within the industry (2008 to 2011) Revenue received from customers. Average unit price paid by residential customers. Operating Expenditure. Capital Expenditure. Recent Reliability Trends. Revenue from line charges, which make up most of Powerco s revenue, increased by around 2% over the period. The industry average increase was around 8%. The average price paid per unit of electricity delivered to Powerco s residential customers increased by around 4% over the period. The industry average increase was around 8%. Powerco s total operating expenditure declined by 3% per year after adjusting for inflation. This compares to an industry average increase per year of around 2% over same period. Powerco s operating expenditure per customer, per km of network and per unit of electricity all trended down from 2008 to Powerco s unit capital expenditure (i.e. $/customer, $/MWh and $/RAB) has trended slightly below the industry average, although recently it has been consistent with the average. The average duration and frequency of interruptions across Powerco s network has remained stable when adjusted for the occurrence of major storms. The overall industry profile for SAIDI over the period mirrors that for Powerco, which seems to confirm that network reliability at a headline level is strongly influenced by exogenous factors. (Source: Electricity Distributors Performance from 2008 to 2011, 29 January 2013, Commerce Commission) 6 - maintenance & renewal Operations, renewal & maintenance Fleet plans & key challenges 7 - Network Development Planning processes & criteria Demand forecasts & area development plans 9 - expenditure forecasts Assumption & drivers Opex and capex 10-year forecasts Our review of the Commission s analysis suggests that, over recent years, Powerco has been managing its business to hold both revenue and cost increases below industry average levels, whilst at the same time maintaining stable headline reliability performance across its networks. Similarly, the review also supports our view that Powerco effectively delivers against its annual operating and capital forecasts. The asset management themes and expenditure profiles, set out in the 2013 AMP, build on our current strong operational capability while transitioning to address the implications of a maturing asset base. The AMP should also enable us to keep pace with good practice asset management and continue our asset management improvement journey.

7 Our Assets Powerco owns and operates extensive urban and rural electricity distribution networks, servicing around 320,000 customers in Coromandel, Hauraki Plains, East and South Waikato, Western Bay of Plenty, Tauranga, Taranaki, Whanganui, Rangitikei, Manawatu and Wairarapa. We manage over 32,000 distribution transformers across over 30,000 km of distribution network (i.e. 20% of the national network length). We supply nearly 5,000 GWh of electricity (i.e.14% of the national volume) and manage a peak demand of around 850MW. The networks we operate are a mix of underground and overhead lines, and when combined with substations, transformers and supporting infrastructure, provide an essential link between the national grid and our customers homes and businesses. These networks are operated on a continuous basis from a central control room in New Plymouth, Taranaki. The mix and indicative replacement cost (RC) of the assets we operate is outlined below Network Performance and Levels of Service A key objective of our asset management approach to date has been to provide a stable level of service (i.e. no deterioration from historical average performance). Our strategies have delivered well against this short-term objective in recent years. Our headline network reliability performance, as measured by SAIDI, has been relatively stable, as explained in Section 3 and illustrated below. However, indications are that underlying reliability performance at specific locations across our networks is being affected negatively by a combination of deteriorating condition, increasing age and model/type-related issues. In recent years, Powerco s Board has approved substantial discretionary expenditure directed at managing short term reliability. This additional expenditure is not being directly compensated for under Powerco s current price path (which will be reset in 2015). We anticipate spending an additional $20m over the regulatory period to maintain short term reliability. Figure 1.2: Our Assets. RC in $m by Asset Category Figure 1.3: Supply Reliability. 300 Distribution lines LV lines LV cables Zone substations Distribution transformers Distribution cables Other network assets Distribution substations Distribution switchgear Subtransmission lines Subtransmission cables RC $m SAIDI (minutes) Planned Unplanned SAIDI Target & Threshold The expenditure profile set out in this AMP reflects a level of investment in our assets that is necessary to ensure that we can continue to deliver network services, at or around current levels of network reliability, over the long term. In other words, the proposed expenditure profile is predicated on maintaining an appropriate operating margin around the current regulatory reliability target of 210 SAIDI minutes. To the extent practicable, we believe the targeted outcomes in the AMP reflect the expectations of our stakeholders. During the year, we routinely consult and survey our customers and the end-consumers on our networks to seek feedback on the quality

8 6 of supply and overall level of service they receive from us. Stakeholder engagement will again be a core focus in FY14, especially in light of the increasing cost pressures being faced by the company which, all things being equal, will ultimately flow through to upward pressure on prices Our Asset Management Framework Powerco s asset strategy and planning capability is well respected within the distribution industry, and our annual AMP has been consistently rated as a leading example in independent industry reviews. However, asset strategy as a discipline continues to undergo progressive refinement internationally and the bar is continually rising. As part of our preparation for this AMP we have taken the opportunity to re-evaluate our planning processes against the Asset Management Maturity Assessment Tool (AMMAT) introduced by the Commerce Commission as part of the information that electricity distribution businesses (EDBs) are required to disclose. The AMMAT standard is based on the internationally recognised asset management framework, PAS55. PAS55 is the British Standards Institution s (BSI) Publicly Available Specification for the optimised management of physical assets. It provides clear definitions for establishing and verifying an optimised and whole of life management system for all types of physical assets. The result of this assessment has highlighted that while we have a solid core of competency in asset management, our delivery is constrained in places by a paucity of robust asset data and information. Although we have sound practices in place, and excel in some areas (for example, more than half the EDBs in New Zealand have chosen to use our library of standards) we know that there are many areas where we can drive improvement. Powerco believes that improving our asset management capability will translate directly to improved cost effectiveness in the way we build and operate our networks, and ultimately help mitigate the level of future price rises. For this reason we have initiated a programme of work to achieve a step-change improvement in our asset management process, systems and documentation. Our goal is to move to an intermediate status on the AMMAT scale in five years 2. The sub-sections that follow outline our approach to asset management. Those who are familiar with prior editions of our AMP will notice a change. Over the past 18 months, we have taken steps to refine our objectives, policies, governance and planning frameworks to help focus our path to improved asset management. These are important changes and changes that we believe are necessary if we are to develop the asset management capability we are seeking. 2 Intermediate status in PAS55 terminology would equate to maturity level 3, which states All elements of PAS55 are in place and are being applied and are integrated. Only minor inconsistencies may exist Objectives Powerco believes in delivering quality services to our customers, at a cost they can be confident represents good value for money. Electricity is inherently dangerous and we strive to build and operate our assets in a way that keeps the public safe from harm. We also believe it is not just what we do that is important, but how we do it. We strive to be a reliable partner to our customers and communities, and to build networks that support New Zealand s energy future. Delivering on these aspirations is at the core of our corporate vision and values and is something we care deeply about. We understand that delivering to these standards is something that needs clear objectives and goals to guide our decisions and investments. In this version of the AMP, we have linked our objectives much more tightly to our corporate vision. Our new objectives and targets are described in Section 4 and are based around four key areas, as follows: Safety: Our safety goal has been set to ensure that the safety of our staff and the public remains our number one priority over the planning period. Reliability: Our reliability goal is designed to ensure appropriate management of our assets to provide a sustainable and reliable service to our customers as we transition to higher rates of asset renewal over the next ten years. Asset Stewardship: Our asset stewardship goal is designed to ensure continual enhancement of our asset management processes as the basis for any increased investment. Cost Efficiency: Our cost efficiency goal is to strive to continually reduce the real cost of operating our networks Policy Powerco s asset management policy has been developed to ensure that we continually focus on delivering services in a way that balances risk and long-term costs. The policy establishes the core asset management principles that drive our planning framework and governance arrangements. In summary, the key policy is: To ensure Powerco s asset management practices achieve an optimal approach to the management of assets (i.e. maintenance and operation, renewal, development and disposal) in order to deliver a safe network at the required level of service in a manner that effectively controls and balances whole of life costs and risks Governance Section 5 of the AMP summarises Powerco s organisational structure, which governs the asset management framework, including the processes for establishing objectives

9 7 and managing risks, project and expenditure approvals, procurement and works delivery. While we have made some recent changes, our governance arrangements are mature and score relatively highly based on the AMMAT assessment. Across the asset management functions, there is a system of roles, responsibilities, authorities and controls to ensure we deliver on the asset management objectives, policy and plans Planning Framework In Section 2 we describe our approach to asset management. The various components together reflect a whole of life approach to investment. We have developed some core planning documents over time and made some recent improvements. The key planning documents are: Area Plans: Area Plans consider the performance and adequacy of GXPs, the subtransmission network and zone substations over a 15-year horizon. The areas are logical groupings of GXPs and subtransmission network areas that can be considered with minimal influence from neighbouring areas. Primarily focused on the development of the network to respond to growth and to deliver adequate levels of security and reliability, the Area Plans will, in the future, consider the renewal of major zone substation and subtransmission components to ensure that renewal and growth replacements are harmonised. The area planning process is discussed in detail in Section 7. Medium Term Plans: Medium Term Plans are completed on a regional basis and consider the performance and adequacy of the distribution network over a fiveyear horizon. Distribution feeders are evaluated to ensure voltage performance and thermal capacity are adequate to meet the five-year load forecast, and that backfeed performance is sufficient for the feeder class. The medium term plans are also discussed in Section 7. Fleet Plans: Our Fleet Plans set out the lifecycle investment for distribution fleet assets such as switchgear, distribution transformers and cables. The plans provide a renewal programme for replacement and specify the approaches to managing the equipment through its lifecycle and obtaining best value from the assets. The Fleet Plans are discussed in detail in Section 6. Specialist Asset Management Plans: Our specialist AMPs manage various classes of specialist equipment, e.g. protection systems, SCADA, communications and asset management IT systems. The plans provide a renewal programme for replacement and specify the approaches to managing the equipment through its lifecycle and obtaining the best value from the assets. These are discussed in detail in Sections 6 and 8. As set out in Section 9, the annual level of expenditure is forecast to increase over the next few regulatory periods (at least until 2023). Our planning framework therefore emphasises ensuring proposed work programmes are achievable and practicable from a delivery standpoint, which includes an assessment of resource capacity and capability Key Drivers of Expenditure Key expenditure drivers fall into three areas: 1. Renewal and Maintenance (Section 6); 2. System Growth and Network Development (Section 7); and 3. Non-Network (Section 8). Each of these is summarised below Renewal and Maintenance Many of the classes of asset that we operate are in the early/mid parts of their lives, or demonstrate a relatively stable age profile, and are considered to be in a reasonable state of health. This is the case for our underground networks, our zone substations, and the majority of our transformer and switchgear assets. For these classes of assets, we expect current levels of renewal and maintenance expenditure to remain relatively stable over the next 10 years. However, our fleet strategies have highlighted a number of emerging issues that, if left unchecked, would affect Powerco s ability to continue to meet its asset management objectives. These include: Overhead lines (a major part of Powerco s overall asset stock) are now showing increasing failure rates as a result of condition, age and, in some cases, type issues. In particular, there appears to be an upward trend in fault rates associated with our distribution overhead lines. Limiting the number of planned outages has, over the past few years, helped contribute to maintaining overall reliability performance within regulated limits, but this is considered to be a short-term approach, because it limits our ability to carry out maintenance and renewal work necessary to arrest and, ultimately, improve unplanned outages over the long term. An analysis of asset age profiles indicates an impending bow wave of increasing renewal expenditure. While age alone is not the sole driver of replacement, renewal expenditure will need to increase to maintain asset health at a level that supports the target levels of service and reliability sought by our consumers. Vegetation encroachment onto overhead structures has a major effect on network reliability performance. Our analysis indicates that increasing the frequency of tree trimming, at certain parts of the network, would yield reliability benefits. Our 2013 AMP includes programmes of work to address the above issues over the planning period.

10 System Growth and Network Development In addition to addressing the effect of ageing/performance of our overhead assets, there is also a need to refine and develop our network architecture to respond to growth and capacity constraints on our networks, and manage changing energy-use patterns more generally. Network development planning on the subtransmission part of our network is undertaken through the development of individual Area Plans, of which there are 15 in total (refer to table below). Area Plans cover a local geographic location, generally in each area the network that consumers are supplied from a particular GXP, or a number of inter-connected GXPs. Table 1.2: Powerco s 15 Network Development Planning Areas. Coromandel Hinuera Taihape Waikino Kinleith Marton Tauranga Taranaki Manawatu Te Puke Egmont Tararua Waihou Whanganui Wairarapa Focusing our network planning at an area level ensures that we can take into account local demand trends and address specific customer and community requirements, as well as local environmental conditions and network characteristics. Going forward, Area Plans will be developed to take a more integrated view of both renewal and growth investment. Our investment proposals for the planning period, which are detailed in Section 7, include strategies to lift security on our Tauranga and Palmerston North networks. Work is also included to improve remote load-shifting technology on our networks to address localised peaks in demand. Area Plans also incorporate a number of Smart Grid developments, which include distribution automation solutions and enhanced use of energy monitoring. Automation is targeted at feeders with high customer density, poor performance and high SAIDI impact. While these solutions increase network operational and protection complexity, the benefits include increased speed of fault response, cost efficiencies, improved local reliability and consumer communication Non-Network Improvements To lay the foundations for continuous improvement in our asset management capabilities (leading to improved cost and quality performance), and to meet the challenges of the future, we have identified a number of critical business improvement initiatives that will be progressed over the AMP planning period. The expenditure forecasts reflect the resources required by Powerco to achieve its business improvement plans, which encompass: Enhancing asset management systems and supporting information systems; Improving maintenance works planning and the scheduling system; Developing a robust resource forecasting and standard cost-estimating process; Enhancing ripple control on the network to facilitate more effective demand-side management. Ultimately, the objective of these improvement initiatives is to provide users and endconsumers with a reliable and secure distribution service in accordance with their needs and expectations, while minimising whole of life costs. We expect that the effect of these initiatives on cost efficiencies and quality performance, as experienced by end-consumers, will be gradual as many of these initiatives will take a number of years to implement. Nonetheless, the initiatives are aligned with our longer-term objectives and these objectives cannot be met unless improvements are achieved Forecast Capex and Opex The forecast expenditure over the planning period (FY14 to FY22) is shown below. The basis of the expenditure profile can be summarised as follows: The investment profile for the four-year period FY14 to FY17 is aimed at meeting short-term network needs and allows for a build-up of expenditure (and delivery resources) to a more steady state level from FY18 onwards. The investment profile for FY18 to FY22 reflects an increase in the level of expenditure to deliver a managed ramp-up of renewals and maintenance work that will address long-term network investment requirements and maintain current levels of network reliability. This expenditure path will need to be approved by the Commerce Commission, but Powerco would seek the views of both customers and end-consumers prior to making any expenditure commitments.

11 9 Figure 1.4: Forecast Capex and Opex (Net of Capital Contributions). Constant $ (000) B 2014 F 2015 F 2016 F 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F 2023 F Capex The 2013 AMP sets out the rationale for the FY18 step change in more detail. The four-year lead-in period allows us sufficient time to: a) further refine our investment plan, particularly in terms of timing and prioritisation; and b) engage and consult with key stakeholders and the regulator to determine whether or not our plans reflect an appropriate trade-off between price and quality. Over the next four years, our maintenance and renewal expenditure (which currently is tracking at a level higher than can be accommodated within the current price path allowances set by the Commission) will continue to be focused on critical safety and those areas that have a more immediate beneficial impact on reliability. Other short-term tactical measures, over and above those currently in place, have been identified (most notably proactive maintenance of critical overhead structures and the use of automated restoration techniques on our networks) to cope with the impact that severe storms have on system reliability. These short-term measures will be further developed during FY14 to ensure optimal expenditure in areas with the potential for the highest impact. Opex Capital Expenditure The following figure shows a breakdown of capital expenditure (in real /constant terms) and excluding capital contributions) on the following: System growth; Replacement and renewal; Reliability, safety and environment; Asset relocation; Non-network assets. There are a number of specific areas where increased levels of capital expenditure will be required to ensure we can meet our asset management objectives. These are: Asset Renewal and Replacement: A review of the performance and age profile of our asset fleets has highlighted the need to lift renewal expenditure (particularly for overhead assets) from around midway through the planning period (FY17/ FY18) as an increasing number of our assets reach the end of their service lives. Key focus areas over the planning period are overhead distribution networks, zone substation renewals and distribution switchgear. Asset renewal plans will be refined over the next three years to confirm the timing and volume of renewal work required. Network Growth: A review of future growth-related capex on an area by area basis has confirmed the appropriate level of expenditure over the period. This indicates a modest increase in investment for this category of expenditure towards the latter part of the planning period to enable us to maintain targeted levels of security and reliability for our customers. Reliability and Safety: We have identified a number of reliability, safety and environmental enhancement projects which are required to support the delivery of our asset management objectives. A key initiative will be our transformer monitoring programme which will provide improved real-time oversight of our networks. We are also planning other initiatives to improve reliability, safety and network communications capability.

12 10 Figure 1.5: Capital Expenditure (Net of Customer Contribution Capex). Constant $ (m) B 2014 F 2015 F 2016 F 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F 2023 F Consumer connection Asset relocations Non-network assets System growth Quality of supply Cost of financing Asset replacement and renewal Other reliability, safety and environment There are a number of specific areas where increased levels of operating expenditure will be required to ensure we can meet our asset management objectives; these are: Fault Response: Recent analysis, including modelling of SAIDI outcomes, suggests that lifting expenditure in the fault response area will provide a cost effective way of maintaining our reliability targets as our networks age. Vegetation Management: Recent analysis and physical trials on our networks indicate that effective tree trimming programmes (collectively termed vegetation management) provide direct benefits for network reliability. We have more work to do to design our cutting programmes to achieve maximum effect in a way that can be effectively resourced. Once this work is complete we anticipate lifting expenditure from around FY18 and introducing rolling cyclical cutting out across our full footprint. Routine Maintenance: Our analysis suggests that by lifting the volume of routine maintenance interventions in some targeted areas, we will be able to enhance the service lives of some assets and improve their overall levels of performance. A breakdown of forecast operating expenditure (in real/constant terms) is shown in the figure below. We believe ongoing delivery of expenditure at a level near forecast 2023 levels will enable a steady state of expenditure to be achieved from then on, with pricing to our customers stabilising around that time. Figure 1.6: Operating Expenditure Operating Expenditure Network operating expenditure is made up of maintenance work (i.e. routine maintenance, inspections, fault and emergency maintenance, and refurbishment and renewal maintenance) and expenditure associated with operating the system. We have forecast a modest increase in operating expenditure in the short term (FY14 to FY17), reflecting an increased focus on managing reliability outcomes through defects management (refer to tactical measures mentioned above). During this period we will be validating and refining the case for lifting operating expenditure across a number of areas. From FY18 onwards, maintenance expenditure is forecast to increase more sharply as we increase the rate of asset refurbishment, deploy additional fault-related resources and focus on planned vegetation management. Our intent in lifting operational expenditure is to optimise our overall level of investment, i.e. we anticipate that the operational expenditures we are proposing will enable us to manage the path of capex investment more effectively. 70 Constant $ (m) B 2014 F 2015 F 2016 F 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F 2023 F Service interruptions and emergencies Routine and corrective maintenance and inspection System operations and network support Vegetation management Asset replacement and renewal Business support

13 11 The increase in operational expenditure that we are proposing reflects a rebalancing of capital and operational expenditure. We consider this to be an appropriate step as our assets mature and we respond to the requirements of an older network. We anticipate that the levels of operational expenditure established towards the end of the planning period will represent a long-term or steady state position Asset Management Improvement Our asset management improvement programme includes a wide range of initiatives that, together, will achieve sustained improvements in asset management and the long-term performance of our networks. These initiatives include: further development of our overall asset management framework, governance and documentation to more closely align with PAS55; development of individual fleet asset strategy plans, which integrate lifecycle costs, interventions (maintenance/replacement/disposal) and set out medium-term investments and implementation plans by asset type; further development of asset information systems (single sources of asset data, network performance modelling, predictive life and asset health models and replacement of the maintenance management system); a focus on works plan delivery and the development of new service provider arrangements, which will include further deployment of contractor competency standards to ensure the highest standards of safety on our networks; further roll-out of a revised range of standards covering material specifications and design and construction with the aim of standardising equipment types across our different networks as assets are routinely replaced or new assets put in place. Asset management is not a static process. As circumstances affecting our assets change (e.g. standards, knowledge, etc.) the expenditure interventions required in a given year are likely to change. The process of annual review and the governance arrangements that we have in place, as set out in Section 6, are designed to ensure that the AMP remains relevant in a dynamic environment Conclusion The 2013 edition of our AMP represents a departure from our historical format. This is more than just a cosmetic change it represents a change in our approach to asset management and a refocusing of our approach for the future. Over the planning period, we anticipate we will need to achieve a step change in investment to ensure that the standards of service to which our customers have become accustomed can be maintained. As this is likely to affect the prices charged to our customers, we are moving to step up the sophistication of our asset management approach to ensure that the optimum balance of quality and long-term cost efficiency can be achieved (and demonstrated). There is much to be done over the coming few years to ensure we are able to deliver the step change in required investment. Enhancing our asset management approach is a critical first step, but we also need to work with our customers and the regulator to ensure they understand the need for us to change our approach, and the costs that this will entail. Our new AMP represents a critical first step in this repositioning process, and forms a basis for starting the discussions that will need to occur. We hope that our customers and other stakeholders find it a useful starting point.

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15 2. Introduction Purpose and Objectives of the Plan This Asset Management Plan (AMP) outlines our long-term strategy for managing the assets under Powerco s ownership. The plan covers a period from 1 April 2013 to 31 March 2023, with a particular focus on the work programmes planned for the next three to five years, during which time, forecasts of asset management drivers can be made with a reasonable degree of accuracy. These drivers include asset condition, resource availability, the regulatory framework, economic growth and its effect on consumption, and stakeholder expectations. Beyond this five-year period, these issues are inherently less certain and, consequently, more generalised forecasts are used. The AMP is based on Powerco s vision of being Your Reliable Partner Delivering New Zealand s Energy Future by providing a focus on achieving an optimal balance between the key elements of asset management, service levels, cost and risk. This focus is reflected throughout this document and is incorporated within our business planning process and the subsequent annual tactical work plans that result. Together, this composite suite of documents is reviewed annually. During the AMP planning period, the distribution system requires enhancement and progressive replacement of network assets to maintain current network performance and satisfy on-going growth in demand. This will ensure the network will continue to meet our customer s needs and to underpin economic development in the communities we serve. Our analysis to date indicates an approaching need to lift both opex (maintenance) and renewal expenditure (capex) in targeted areas across our networks. The rationale for this increased investment is set out in this AMP. All things being equal, increased investment will place upward pressure on prices and may need to be approved by the Commerce Commission. Given our focus on delivering a sustainable and cost-effective service, we are working hard to minimise the cost impact on customers. Powerco is actively considering applying for a Customised Price Path (CPP), but before we do so, we will further refine our thinking to manage our costs and consult widely with our stakeholders. In the interim, our expenditure projections allow for continued increases in asset investment. During this time we will continue to monitor network performance, further refine our investment strategies and refocus our activities, as needed, to meet our quality targets Overview of Powerco For more than a century, Powerco has distributed electricity and gas to New Zealand homes and businesses. We have grown and diversified over the last 20 years to become a significant part of New Zealand s economic infrastructure. We are owned by QIC (58%) and Brookfield Infrastructure Partners (42%). We operate and maintain the largest network of electricity lines and gas pipes in New Zealand over the largest area of our country. We are the second largest energy distributor in New Zealand in terms of customer connections. Our network of assets is complex and the scope of our operations is large. Powerco s electricity networks supply customers in Tauranga, Thames Valley, Coromandel, Eastern and Southern Waikato, Taranaki, Whanganui, Rangitikei, Manawatu and Wairarapa Powerco s Vision, Mission and Values Our Vision, Your Reliable Partner Delivering New Zealand s Energy Future, requires us to effectively manage, maintain and improve upon our assets and to reliably and safely deliver the energy that our customers expect today and into the future. The New Zealand electricity and gas distribution sectors are heavily regulated and, as such, our investment and our pricing decisions must be made in consultation with our regulator. We have a responsibility to our stakeholders, our shareholders and our regulators to ensure that our business decisions are carefully considered so that the actions we take achieve the objectives that we have set in the most cost-effective manner. Figure 2.1: Powerco s Corporate Vision. Powerco, your reliable partner, delivering New Zealand s energy future Our Mission statement seeks to build further on our vision of reliable community partnership and focuses our people on the importance of our future energy needs. The Mission statement also highlights the essential requirement to operate safely and efficiently in delivering energy. A theme that is reflected throughout this AMP is our clear commitment to reliability. This commitment involves continuous improvement in all our operations. How we manage our business for the future will drive increased energy efficiency and value for our stakeholders. Figure 2.2: Powerco s Mission Statement. In profitable partnership with our stakeholders we are powering the future of New Zealand through the delivery of safe, reliable and efficient energy.

16 14 Our Values define our identity, who we are and what we stand for. We developed these values by describing a set of observable behaviours that would be displayed by the typical Powerco employee. These behaviours define the way we go about our work and our relationships with others. By demonstrating these behaviours we will be living our Values. The Values define our culture, inform our decisions and provide authority to our leadership. Our asset management framework aims to embed these Values in our approach to all aspects of the investment cycle, from planning through to delivery. Figure 2.3: Powerco s Values. OUR VALUES Safe Trustworthy Collaborative Conscientious Intelligent Accountable OUR observable behaviours We are commited to keeping people safe. We act with integrity. We are honest, consistent and ethical. We trust each other and our external partners and work to be trust in return. We work together with our partners, contribute to our capabilities and provide timely support and consideration to achieve our collective goals. We are proactive, hardworking, diligent and thoughtful. We are mindful of the needs of others and the environment. We take ownership for our actions. We make informed decisions for the best outcome. We continually seek improvement and innovative solutions from our suppliers and ourselves. We lead. We take ownership of our decisions and responsibility of our actions. We are proactive in identifying and resolving problems. Table 2.1: Powerco s Stakeholders. Stakeholder Main Interest How Stakeholders Interests are Identified Electricity consumers Retailers Embedded Generators Transpower (as grid and system operator) Commerce Commission Service quality and reliability Price Safety Information Environmental Efficient business-to-business processes Service to final consumers Price Technical performance and rules Reliability Connection agreement Technical performance and rules compliance GXP loading and planning Pricing levels Quality standards Effective governance Consultation and retailer feedback Dedicated client managers for large consumers Appropriate price paths and quality standards Incident reports, complaints and compliments Measurement and benchmarking of Powerco performance Dedicated relationship client managers Contracting agreements Direct engagement Direct engagement and negotiation Contractual connection agreements Direct engagement Administration of Electricity Governance Rules Meetings with Commissioners and staff Quality responses to consultation papers, decision papers and regulatory determinations 2.4. Powerco s Stakeholders Our stakeholders are at the centre of our Vision and Mission. Prior to committing to investment, which ultimately flows through to customer prices, Powerco must carefully consider the needs of its stakeholders to deliver outcomes that strike a balance between price and delivered quality of service. Stakeholder requirements don t always align or are sometimes mutually exclusive. For example, different customers may place greater or lesser emphasis on price or quality or have an expectation that the level of service can continually be improved with minimal cost implications. In such instances, Powerco is required to exercise judgment, but in all cases we strive to engage with stakeholders in a transparent manner to explain our decisions. The publication of this AMP is one such example of engagement. Powerco s key stakeholders, their interests and how these interests are accommodated in our asset management practices are described in Table 2.1. Further detail is presented in Appendix 3. State bodies and regulators Powerco s shareholders Employees and Contractors Public, iwi, landowners Safety via the Ministry of Economic Development Market operation and access via the Electricity Authority Environmental performance via the Ministry for the Environment Efficient and effective business management and planning Financial performance Governance Risk management Safe, productive working environment Training and development Continuous improvement, adoption of new technology and practices Public safety Land access and respect for traditional lands Environmental Published acts, rules and determinations Formal reporting On-going consultation Corporate governance arrangements Formal reporting KPIs Regular dialogue, internal communications and employee surveys Contractor negotiations and dialogue Unions and employment negotiations Consultation and feedback Access and easement negotiations and agreements Acts, regulation and other requirements

17 Approach to Asset Management Introduction This subsection describes Powerco s approach to asset management and how it fits with Powerco s corporate Vision, Mission and Values. A key characteristic of our methodology is the link from corporate objectives, through the asset management policy to specific asset management plans. Powerco has established a reputation as an effective manager of its assets, with a appropriate focus on cost effective outcomes which have flowed through to bottom line results for our customers. This capability was recently highlighted via external analysis completed by the Commerce Commission who analysed trends in the cost and reliability performance of each electricity distribution business in New Zealand, including Powerco. A summary of Powerco s performance measured across a range of activities, over the period 2008 to 2011, relative to the industry average, is set out in Table 2.2 below. Table 2.2: Our relative performance compared with the NZ distribution sector. Powerco s Relative Performance within the industry (2008 to 2011) Revenue received from customers. Average price paid by residential customers. Operating expenditure. Capital expenditure. Recent reliability trends. Revenue from line charges, which make up most of Powerco s revenue, increased by around 2% over the period. The industry average increase was around 8%. The average price paid per unit of electricity delivered to Powerco s residential customers increased by around by around 4% over the period. The industry average increase was around 8%. Powerco s total operating expenditure declined by 3% per year after adjusting for inflation. This compares to an industry average increase per year of around 2% over same period. Powerco s operating expenditure per customer, per km of network and per unit of electricity all trended down from 2008 to Powerco s unit capital expenditure (i.e. $/customer, $/MWh and $/RAB) has trended slightly below the industry average, although recently it has been consistent with the average. The average duration and frequency of interruptions across Powerco s network has remained stable when adjusted for the occurrence of major storms. The overall industry profile for SAIDI over the period mirrors that for Powerco, which seems to confirm that network reliability at a headline level is influenced mainly by exogenous factors rather than a company s asset health per se. (Source: Electricity Distributors Performance from 2008 to 2011, 29 January 2013, Commerce Commission.) The Commission s analysis indicates that, over recent years, Powerco has been managing its business to hold both revenue and cost increases well below industry average levels, whilst at the same time maintaining stable headline reliability performance across its networks. The Commission s review also highlights Powerco s relative strength in its ability to deliver against its annual operating and capital forecasts. We are pleased with the results we have been able to achieve via effective asset management in recent years; however, there is an opportunity to build on this strong base to enhance our capability further. In some areas our approach is constrained by the paucity of reliable asset data - for example, condition information. Therefore, we are currently placing a significant focus on improving our processes, tools, systems and documentation to address information deficiencies. The need to make further improvement is particularly pertinent in the face of an observable degradation in performance of our overhead line assets, described in Section 3. We need to drive for better utilisation of asset condition information, more integrated investment decision-making (to better optimise lifecycle expenditure) and more closely target field operations on those areas that are integral to maintaining acceptable service levels to our customers. The framework we use for these key elements of asset management is described in this section Overall Approach Powerco s approach to asset management uses many aspects of good (and in places leading) industry practice through the establishment of an asset management policy, asset management enablers and controls, and a focus on the efficient delivery of plans. All this is done within the context of the current (and an expectation of future) customer requirements, the prevailing business and regulatory environment and available resources and technology. Powerco is currently transitioning its asset management approach to align more visibly with the requirements specified by the PAS55 framework. For several years, Powerco has benchmarked its asset management maturity using the International Infrastructure Management Manual self-assessment procedures. This has a high level of focus on systems integrity and information availability. However, typical of many New Zealand utilities, perhaps the most significant gap Powerco has with immediately aligning to the PAS55 framework is the need to strengthen documentation that articulates the rationale for investment decision-making across the lifecycle of an asset and which illustrates how the core asset management principles (and policy) are being applied in practice.

18 16 Four areas of our asset management system have been identified as priority areas for further development: Asset Management Policy: Provides a high-level statement of Powerco s direction, principles and mandatory requirements; this is the key driver of the asset management system and everything should map back to the policy. Our Asset Management Policy is a recently introduced document and will take time to embed within the business; Asset Management Strategy: Sets out how the Asset Management Policy will be achieved, and be the co-ordinating mechanism to ensure that activities on physical assets are aligned to optimally achieve the organisation s corporate and asset management objectives. We have yet to develop an Asset Management Strategy, but will be doing so over the next 12 months. Currently our asset strategy is incorporated in our Asset Management Plans; Asset Management Plans: Identify the tasks that need to be completed (by when) to meet the asset management objectives and provide for the allocation of appropriate responsibility and authority for each task. We are looking to continue the development and refinement of our plans. Establishing an Asset Strategy will assist in the alignment of our planning documents; and, Controls and Enablers: Are the process elements that are essential to ensure appropriate governance is in place during the execution of the plans. Controls and enablers also ensure that resources are available and there is a methodological approach to decision-making, promoting consistent, repeatable and auditable actions. We have a continuing focus on improving the efficiency and effectiveness of our processes and systems, including investment in capturing and analysing asset information. The Asset Management Policy and Strategy are discussed below. A detailed discussion of Powerco s overall asset management performance objectives is set out in Section 4 and a description of the asset management governance arrangements, which are in place across the business, is set out in Section 5. Asset plans covering asset renewals, growth/development and non-network investments, are summarised in Sections 6, 7 and 8 respectively Asset Management Policy The purpose of the Powerco s Asset Management Policy is to interpret the Vision, Mission and Values in terms that can be reflected in asset management plans. It is a recently introduced document that provides the necessary linkage between our corporate objectives and what we are aiming to achieve through our asset management practices. The Policy also sets out some key asset management principles that flow through all of our processes, and establishes our asset management objectives and key accountabilities for asset management. Figure 2.4 illustrates where the Asset Management Policy fits within the overall asset management structure. Figure 2.4: Asset Management Policy. Stakeholder expectations Powerco mission, vision and values Corporate objectives and network vision Asset management policy Network development and asset management strategies Regional Area Development Plans Demand Forecasts external influences Asset Fleet Renewal and Maintenance Plans Asset Age / Health capital works programme maintenance works plans

19 17 The Policy states that one of our main aims is to ensure Powerco s asset management approach delivers optimal outcomes for all stakeholders, consistent with their needs and requirements, by: Meeting and surpassing (where it is cost-effective to do so) regulated requirements for asset management; Ensuring requirements and operational capabilities for asset management are identified, responsibility for asset management is defined and the provision of resources to deliver the asset management objectives occurs; Demonstrating transparent and responsible asset management processes that align with sound industry practice; and Optimising the useful life and service performance of the assets against the costs incurred. The Policy has been approved by the CEO and communicated to all asset management staff. The full Asset Management Policy is available on Powerco s internet site at The new asset management policy will play a leading part in driving the development of Powerco s asset management system Asset Management Performance Objectives The introduction of the formal Asset Management Policy has provided Powerco with a platform to more clearly define a revised suite of asset management performance goals and objectives against which we can measure our success. These goals and objectives are described in more detail in Section 4, together with a summary of the tactical initiatives that will help us achieve them. We believe that the newly defined goal and objectives better reflect the corporate vision and place a particular emphasis on delivery of services to our customers and alignment with the needs of our stakeholders. In summary, the asset management goals are: Safety Keep the public, our staff and our contractors from harm. Reliability Deliver reliable networks that meet the needs of our customers. Asset Stewardship Enhance asset management to the benefit of our customers. Cost Efficiency Continuously seek out and deliver cost efficiencies. The goals we have developed are forward-facing and each is supported by a number of objectives with measurable targets, which will enable us to keep track of and report on, our progress Developing an Asset Management Strategy PAS55 specifies that the purpose of an Asset Management Strategy is to establish the context and approach for asset management plans by providing a clear linkage between the high-level objectives established in the Asset Management Policy. This is illustrated in Figure 2.5. Powerco does not currently have a formal asset management strategy document. Strategic asset management planning is currently disseminated and incorporated into individual asset plans. Development of a formal asset management strategy, in accordance with the specification set out under PAS55, will be a key focus over the next 12 months. It is envisaged the strategy will address such things as: Lifecycle management requirements of the assets; Clearly state the approach and methods by which assets will be managed, including performance, condition and criticality assessment; Set out criteria for optimising and prioritising asset management objectives; Describe Powerco s approach to the management of risk; Set out a direct link between our asset management practices, current performance levels and our target service levels; Outline the rationale and approach to the economic assessment of investment options, including a statement of base assumptions; Set out a roadmap and timeline to frame planned continuous improvement initiatives; and Provide a framework methodology for the development of integrated maintenance and renewals plans. Our current strategic planning practices are described in Sections 6, 7 and 8. Closing the gap to have a documented asset strategy will involve documenting both our current and future approach to asset planning Asset Management Planning Documents Powerco s suite of individual Asset Management Planning Documents forms the backbone of the company s asset management approach. These plans are described below. More detail on each plan can be found within Sections 6, 7 and 8. These include documentation of the planning methodology and key assumptions, the different interventions and options considered (where appropriate), the specific tasks and activities (actions) required to optimise costs, risk and performance of the assets in questions (to the extent practicable with the current level of asset information) and the means and timescales by which these actions are to be achieved. Fleet Asset Renewal Plans: These plans set out the lifecycle approach for our distribution fleet assets, such as switchgear, distribution transformers and cables. The plans provide a renewal programme for replacement and specify the

20 18 approaches for managing the equipment through its lifecycle and obtaining best value from the assets. The fleet plans are discussed in detail in Section 5. Area Plans: Area Plans consider the performance and adequacy of Grid Exit Points (GXPs), the subtransmission network and zone substations over a 15- year horizon. The areas are logical groupings of GXPs and subtransmission network areas that can be considered with minimal influence from neighbouring areas. Currently, there are 15 Area Plans, each focused on the development of the network to respond to growth and to deliver adequate levels of security and reliability. During FY14 we intend to develop Area Plans to also consider the renewal of major zone substation and subtransmission components to ensure that renewal and growth replacements are integrated. The Area Planning process is discussed in detail in Section 7. Medium Term Plans: Medium Term Plans are completed on a regional basis and consider the performance and adequacy of the distribution network over a five-year horizon. Distribution feeders are evaluated to ensure voltage performance and thermal capacity is adequate for the five-year load forecast, and that backfeed performance is sufficient for the feeder class. The medium term plans are also discussed in Section 7. The output from the individual planning documents form the basis of our capital and maintenance work programmes. These are used to optimise network investment within each of the primary network areas operated by Powerco (Eastern and Western). The overall management process for the establishment of these plans and governance structure is described in more detail in Section Asset Management Drivers As noted above, Powerco s asset management objectives align with the company s corporate objectives, which, in turn, stem from the Powerco s Vision and Mission. However, successful delivery of Powerco s asset management objectives is dependent to a large extent on the external context within which Powerco operates (factors largely outside of Powerco s control) as well as a number of internally derived influences, which can be considered to be more controllable. Figure 2.5 illustrates some of the main external and internal influences that need to be considered as part of the overall asset management decision-making framework. Figure 2.5: Factors Influencing Powerco s Asset Management Framework. Key EXternal Influences Customer Price Expectations Load Growth Regulatory Context Technology Trends Customer Service Expectations A reliable client, delivering New Zealand s energy future. In profitable partnership with stakeholders... delivery of safe, reliable and efficient energy. Asset Management Policy and Key Performance Objectives. Planning Operating & Maintenance Procurement Development Approval Renewal Delivery Disposal Asset Management Plan (AMP) Key Internal Influences Asset Health (Age/Condition) Resource Capacity /Capability Risk Tolerances Asset Configuration Safety/Environment Policy