INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO

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INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
I NFORm AT I ON D I SC LO SUR E FO R
ELECT RI C I T Y NET W O R K S 2012 - 20 21

                                              ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021   1
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
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............................................ 10
                                                                         WHO WANTS WHAT FROM THE ASSETS?.................................................. 12
                                                                         STATE OF THE ASSETS................................................................................ 15
                                                                         PERFORMANCE AGAINST TARGET OVERVIEW........................................... 15
                                                                         RISK MANAGEMENT.................................................................................... 17
                                                                         ASSET LIFE CYCLE PLAN............................................................................ 17
                                                                         NETWORK DEVELOPMENT PLAN................................................................ 19
                                                                         NETWORK PERFORMANCE ENHANCEMENT.............................................. 20
                                                                         CAPITAL EXPENDITURE............................................................................... 20
                                                                         OPERATIONAL EXPENDITURE..................................................................... 21
                                                                         FINANCIAL.................................................................................................... 22
                                                                         ASSET MANAGEMENT IMPROVEMENT....................................................... 23
                                                                         INFORMATION SYSTEMS............................................................................. 23
                                                                         SERVICE PROVISION STRATEGY................................................................. 23
                                                                         PROJECT MAPS........................................................................................... 24
                                                                         KEY DEFINITIONS......................................................................................... 33

2   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021   1
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
EXECUTIVE SUMMARY
    Welcome to the 2012 edition of our Summary Asset Management Plan (AMP).                    apply a risk-based prioritisation approach to our investments. We consider this to be
    This Summary AMP outlines the key points, that we consider relevant to interested          an acceptable approach as long as this doesn’t erode our operating headroom and
    parties, from Powerco’s full AMP. It is intended to provide a starting point for           ability to manage the on-going risk of adverse network performance and/or result in
    discussions with key stakeholders and generate increased feedback on the vital             grossly inefficient cost outcomes.
    service Powerco provides.
                                                                                               Powerco has a constructive relationship with its economic Regulator, the Commerce
    The full AMP is an important part of Powerco’s planning and investment framework.          Commission, and where we believe long-term investment requirements may be
    It describes for our customers, shareholders, employees and partners how we will           compromised by the current regulatory allowances we will discuss this with them.
    manage our electricity distribution network to deliver the standards of reliability of     We believe our AMP is an important starting point for engaging positively with
    electricity supply that our customers demand and the commercial performance that           the Commission and its advisers to ensure long-term investment levels remain
    our shareholders expect.                                                                   appropriate. Whilst being primarily a document developed for Powerco’s own
                                                                                               planning purposes, publication of the AMP also satisfies the regulatory requirement
    The AMP is a technical document that sets the context for the annual investment
                                                                                               to disclose details of our Asset Management methodologies, in accordance with the
    we believe is necessary to maintain the performance of existing network assets
                                                                                               Electricity Disclosure Handbook 2004 (as amended 2008).
    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            Asset Strategy and Context for the 2012 AMP
    of customer and stakeholder requirements, and our knowledge of the existing and
                                                                                               Powerco understands that good Asset Management underpins the ability of our
    projected condition and performance of the assets on our networks.
                                                                                               networks to deliver both supply quality and security, and value for consumers.
    The 2012 AMP covers a planning period from 1 April 2012 to 31 March 2022.                  We refer to Asset Management in this context as the co-ordinated policies and
    However, our main focus is on ensuring that our work programmes for the next               practices through which we acquire, analyse and review information on our assets,
    three to five years are clearly defined and form part of a longer-term asset strategy.     assess future network requirements and deliver cost-effective and safe investment
    Each year, a comprehensive update of the plan is completed to reflect changes on           in our network.
    the network, new technologies that are available and work we have undertaken
                                                                                               An important element of our Asset Management practice is a focus on continuous
    during the year to develop a better understanding of the overall health of our
                                                                                               improvement and, to this end, we have recently assessed our practices against the
    assets. The updated AMP also reflects independent feedback we have received on
                                                                                               criteria in the International Infrastructure Management Manual and using the Asset
    our Asset Management methodologies from the Commerce Commission and its
                                                                                               Management Maturity Assessment Tool prepared by Parsons Brinckerhoff NZ for the
    expert advisors.
                                                                                               Commerce Commission. The results, whilst identifying some areas for improvement,
    Our ultimate aim is to optimise the life-cycle costs of our assets whilst meeting          mainly in relation to data capture and information systems, were on the whole
    agreed service targets and future demand requirements at an acceptable level               positive. From a strategic perspective, we are seeking to extend our planning horizon
    of network risk – what we term achieving a steady state level of efficient asset           out to 20-plus years to make more explicit the company’s strategy for delivering
    investment. However, as a regulated supplier of electricity services, we have to           outputs and meeting demand over the long term.
    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

2   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
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 worst-
performing 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
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
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
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
Figure 1: Sectors of the New Zealand Electricity Industry

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

                                                                                                                    SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021       5
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
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     OPERATIONS
    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
                                                                                                  Electricity Networks
    Wairarapa (collectively known as our Southern and Western Regions).                           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
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
ASSETS COVERED
The full AMP, to which this summary refers, provides detailed information on
                                                                                                                                                      Replacement Cost by Asset Category
Powerco’s fixed electricity network assets. The following graphs and table provide a
                                                                                                                                              2,500
summary of the assets covered.
                                                                                                                                              2,000

                                                                                                                      Replacement Cost ($m)
          Electricity Network Replacement Cost by Asset Type
                                                             900                                                                              1,500

                                                             800
                                                                                                                                              1,000
                                                             700
                                                             600
                                                                                                                                               500
                                                             500
                                                  $million

                                                             400                                                                                 0
                                                                                                                                                         Overhead           Underground         Transformers        Switchgear           Substations
                                                             300
                                                             200                                                                                                                                Asset Category

                                                             100                                                                                        Assets Valued at ODV Replacement Cost        Assets Valued at Current Replacement Cost

                                                               0

              Overhead Line                    Underground Cable                   Distribution Transformers
                                                                                                                    Figure 5: Replacement Cost by Asset Category
              Distribution Switchgear          Zone Substations
              SCADA/Comms/Ripple               Spares (Emergency & Critical)                                        Table 1: Key Network Statistics

                                                                                                                                                                                                                                    Southern &
Figure 3: Electricity Network Asset Replacement Cost by Asset Type                                                   Key Network Statistics as at 31 March 2012                                                     Eastern           Western            Total

                                                                                                                     Length of Overhead Circuit (km)                                                                 7,679             14,644          22,323
                                                                                                                     Length of Underground Circuit (km)                                                              4,407               3,192          7,600
            Electricity Network Replacement Cost by Function
                                                                                                                     Subtransmission Circuit Length (km)                                                               592               1,011          1,603
                                                        1,000
                                                                                                                     Distribution Circuit Length (km)                                                                5,828             10,780          16,609
                                                             800
                                                                                                                     Low-Voltage Circuit Length (km)                                                                 5,667               6,044         11,711

                                                             600                                                     Number of Zone Substations and Switching Stations                                                   45                  73          118
                                                  $million

                                                                                                                     Zone Substation Transformer Capacity (MVA)                                                        748                 962          1710
                                                             400
                                                                                                                     Distribution Transformer Capacity (MVA)                                                         1,418               1,548          2,967
                                                             200

                                                              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
INFORMATION DISCLOSURE FOR ELECTRICITY NETWORKS 2012-2021 - POWERCO
THE ASSET MANAGEMENT PLAN AND PROCESS
    With Powerco’s electricity network assets ranging in age from new to more than 50
                                                                                              Who wants what             What performance are    How are we managing       What does this mean for   How can we improve?
    years old, effective long-term planning is a fundamental requirement of our business.     from the assets?           we targeting from the   the network and solving   the works programmes
                                                                                                                         assets? How are we      any performance gaps?     and required
    Our AMP is an integral part of that planning because it not only explains Powerco’s       What is the state of the
                                                                                              assets?
                                                                                                                         doing vs. the target?                             expenditure?
                                                                                                                         What are the gaps?
    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
                                                                                              Section 2                  Section 4               Section 7                 Section 7, 8 and 9        Section 11
    requirements as assets progressively reach the end of their useful lives.                 Define Stakeholders        Set Performance         Set Asset Life Cycle      Develop Work              Develop AM
                                                                                              Define AM Drivers          Targets                 Strategy                  Programmes                Improvement Initiatives
    The full AMP contains specific details on Powerco’s short- and long-range planning                                                           Analyse Renewal           Linked with AM Driver
                                                                                                                         Section 5               Needs
    for network development, renewal and maintenance. In other words, the AMP is a            Section 3
                                                                                              Describe Assets            Performance
    high-level document providing management, stakeholders and any interested parties                                    Evaluation              Section 8                 Section 10
    with a broad overview of Powerco’s asset management policies, asset details,                                         Section 6
                                                                                                                                                 Security Criteria         Set Expenditure
                                                                                                                                                 Prepare Load              Forecasts
    service levels, capital and maintenance works planning, expenditure forecasts, risk                                  Analyse Network         Forecasts
                                                                                                                         Risks
    management and performance evaluation.                                                                                                       System Growth Needs
                                                                                                                                                 Section 9
    Incorporating information from a range of other internal documents, the AMP sets
                                                                                                                                                 Reliability, Safety,
    out the performance criteria for the assets, and summarises the actions needed to                                                            Environment
                                                                                                                                                 Enhancement Needs
    achieve those performance criteria.                                                                                                          Protection & Control,
                                                                                                                                                 Smart Network
    Developing the AMP is a key step in ensuring that the needs of all stakeholders are                                                          Development
    properly considered and incorporated into Powerco’s long-term Asset Management
    strategies. It also ensures that plans provide, subject to any regulatory constraints,
                                                                                             Figure 6: Structure of Asset Management Plan
    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.

8   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021
PURPOSE OF THIS SUMMARY AMP                                                                PROCESS OVERVIEW
Electricity distribution networks and the Asset Management processes that drive            The Asset Management process requires that electricity is provided at the most
them are very complex. Therefore, a huge amount of information is required to              efficient cost. This is a process of many parts, including:
compile a thorough AMP. This complexity and level of detail can act as a barrier
                                                                                           Strategy
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,                 Long-term strategic direction for the management of the assets and the
which is intended to identify the key issues relevant to the majority of interested        business operations. This is the key interface for customer consultation and
parties. Anyone interested in Powerco’s AMP or operations in general is encouraged         corporate strategy.
to read this summary to learn more about our business and what we are trying to
                                                                                           Planning
achieve on behalf of all our stakeholders. If further information is required, Powerco’s
full AMP is available at:                                                                  This process involves planning for the renewal, development, maintenance and
                                                                                           operation of the assets.
www.powerco.co.nz/Publications-and-Disclosures/Disclosures/Electricity
                                                                                           Service provision
Please note, this Summary AMP is intended to be consistent with the full AMP
published in April 2012. Therefore, commentary, figures and dates contained within         This involves the delivery of construction, maintenance and operating services on the
this Summary AMP reflect those from the published date for the full AMP.                   network assets.
                                                                                           Network operations
HOW TO PROVIDE FEEDBACK                                                                    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
Powerco provides a vital service to your community. Therefore, it is vital that you        service providers.
have your say on the service we provide. We welcome feedback on this Summary
                                                                                           Information
AMP, our full AMP, or any aspect of our business or the electricity industry. Feedback
can be provided in the following ways:                                                     This involves the maintenance of, and reporting from, the asset information databases.
•   By email: yourview@powerco.co.nz                                                       There is, of course, extensive and constant interaction between these processes,
•   By telephone: 0800 POWERCO (0800 769 3726)                                             and with corporate, customer and regulatory management teams.
•   By post: Consultation Manager
              C/- Powerco Ltd
              Level 2, 84 Liardet St
              Private Bag 2061
              New Plymouth 4342

                                                                                                         SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021         9
ASSET MANAGEMENT STRATEGY OVERVIEW
     At its highest level, the Asset Management process seeks to find and optimise the                 Powerco’s AMP identifies and provides details on the following key electricity Asset
     most efficient trade-off between cost, service and risk. By minimising the costs, the             Management-related strategies:
     asset manager may compromise on asset performance and asset risk; by minimising
                                                                                                       1. Renewal and modernisation: Modernisation of the network involves the
     the asset risk, service performance may be compromised and costs increased.
                                                                                                       replacement and updating of our aged assets to reduce the risk of asset failure,
     These three areas are intrinsically linked and the asset manager seeks to achieve the
                                                                                                       which can result in interruptions to supply. Powerco’s required renewal expenditure
     appropriate balance between them. This is represented in the following diagram.
                                                                                                       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
                                              f   these ar
                                                          eas, the oth
                                                                      er tw                            expenditure.
                                          ne o                             oa
                                        no                                   rea
                                     uto                                        sw
                                   sp                                             ill
                                 si                                                     be
                               cu                                                                                                            Asset Renewal Capital & Operational Expenditure
                          fo

                                                                                         co
                           h

                                                                                           m
                                                                                                                                       100
                         uc

                                                                                            pr
                       om

                                                                                              om
                                                                                                                                        80

                                                                                                ise
                  If to

                                                                                                          Nominal Expenditure ($000)
                                                                                                   d
                                                                                                                                        70

                                                                        LEVEL                                                           60
                                   COST
                                                                        OF RISK                                                         50
                                                                                                                                        40
                                                   NETWORK
                                                                                                                                        30
                                                    ASSETS
                                                                                                                                        20
                                                                                                                                        10
                                                                                                                                         0

                                                                                                                                                                         2009 A

                                                                                                                                                                                  2010 A

                                                                                                                                                                                           2011 A

                                                                                                                                                                                                    2012 B

                                                                                                                                                                                                             2013 F

                                                                                                                                                                                                                      2014 F

                                                                                                                                                                                                                               2015 F

                                                                                                                                                                                                                                        2016 F

                                                                                                                                                                                                                                                 2017 F

                                                                                                                                                                                                                                                          2018 F

                                                                                                                                                                                                                                                                   2019 F

                                                                                                                                                                                                                                                                            2020 F

                                                                                                                                                                                                                                                                                     2021 F

                                                                                                                                                                                                                                                                                              2022 F
                                                                                                                                              2006 A

                                                                                                                                                       2007 A

                                                                                                                                                                2008 A
                                             PERFORMANCE
                                                LEVELS
                                                                                                                                                       Asset Replacement and Renewal                                    Refurbishment and                          Year (ending June)
                                                                                                                                                                                                                        Renewal Maintenance

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

                                                                                                       SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021         11
WHO WANTS WHAT FROM THE ASSETS?
     The following figure illustrates the relationship between Powerco’s main stakeholders,                                                                 •   Various media communication channels, such as newspaper and radio
     their drivers and the Asset Management process. The diagram now includes a                                                                                 advertising and Powerco’s website.
     recognition of the business planning process as the stakeholder drivers are equally
                                                                                                                                                            In addition to the above, Powerco has a Consultation Manager dedicated to
     (and in some cases more appropriately) applicable to the business planning process.
                                                                                                                                                            planning and co-ordinating consultation activities and maintaining relationships with
                                                                                                                                                            key stakeholders. Feedback obtained through consultation is incorporated into
         Customers/                              Government &                         Owners & Lenders                          Employees &
         Consumers                               Regulator                                                                      Contractors                 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
         Service/Price Safety Load            Economic Efficiency
                                              (Long-Term Interest of Consumers)
                                                                                      Long-Term Value
                                                                                      (Productivity & Utilisation)
                                                                                                                                Safety Workflow Certainty   decision-makers and business leaders. This way, consumer feedback goes directly
         Growth                                                                                                                 Market Costs
                                              Environmental Safety & Compliance       Risk Management                                                       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                                                                      Powerco Chief Engineer Michael Whaley responds to a question at a consultation with
          with Powerco.                                                                                                                                     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
     •    Workshops and focus group-type meetings with regulators, consumers and
                                                                                                                                                            Manager Charlotte Littlewood and Network Operations Manager Phil Marsh.
          consumer representative groups.

12   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021
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
                                                                                                                                                                            Regulated Revenue
                                                                                                                                                   Productivity
                                                                                                                                  Utilisation

                                                                                                                                                                                        Indirect Costs
                                                                                                                                                                    O&M
                                                                                                                                                 Development
                                                                                                                                                                                              Market Costs
                                                                                                                                  Renewal                                                      For Work
                                                                                                                                                                                          Risk
                                                                                                                                                                                          Mgmt
                                                                                                                                                                        Environmental
                                                                                                                        Asset Age,
                                                                                                                                                    Load       Safety
                                                                                                                        Condition &    Service
                                                                                                                       Configuration               Growth

                                                                                                                                                                                                             Time
                                                                                                                        Asset Management Process

                                                                                            Figure 10: Illustration of the Influence of Asset Management Drivers

Powerco Performance Engineer Ken Pattie discusses Powerco’s BasePower solution for remote   The diagram reflects the current situation, which can be summarised as upwards
rural consumers at the Whanganui River settlement of Matahiwi.                              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 – FY2021                           13
At a strategy level, constraints, Asset Management drivers and the needs and interests         At a tactical and operational level in the network planning process, the investment
     of various stakeholders are evaluated and considered as part of the corporate planning         policy and Asset Management strategy is shaped by Powerco’s multi-stakeholder
     process. These are all applied during the network planning process.                            assessment process. This process is a key part of the way in which network
                                                                                                    development and renewal programmes are formed. Powerco faces a constant
     It must be recognised that, with such a wide range of stakeholders, their drivers and
                                                                                                    balancing act to ensure the needs of consumers and stakeholders are met at the
     needs will also vary widely. For example, Powerco’s consultation to date indicates
                                                                                                    optimal levels of price and quality. Feedback from electricity retailers and consumers
     that most consumers wish to see reliability and quality standards improve or remain
                                                                                                    is essential in ensuring we achieve the best possible balance for the widest possible
     at present levels but do not wish to pay more for electricity overall. However,
                                                                                                    range of stakeholders.
     maintaining or improving standards requires a greater level of investment due to an
     ageing network and load growth. By restricting Powerco’s revenue through price-                To help achieve the optimal balance, projects are assessed using a multi-stakeholder
     constraining regulation, Regulators seek to put downwards pressure on electricity              optimisation process (known as Coin Optimiser), whereby the projects are reviewed
     prices. The regulation is limited in its effectiveness in constraining overall retail prices   against a set of four strategic objectives. The primary objectives of the optimisation
     because the majority of a retail electricity bill is made up of components that are            process are:
     outside Powerco’s control. However, it does have a large impact on how much                    •   To provide a consistent approach to the development of capital works
     Powerco is able to invest back into the network – at the same time, Powerco must                   programmes that balances (potentially conflicting) stakeholder requirements;
     continue to maintain reliability and quality standards while still making a fair return to
                                                                                                    •   To eliminate (or mitigate) any high risks to public safety, network performance,
     investors. As such, Powerco seeks to operate an efficient business and to ensure
                                                                                                        customer outcomes, public relations, or employee engagement; and
     regulatory consistency, predictability, transparency and accountability to help lower
     perceived investment risk, thus allowing for investment at appropriate levels required         •   To maximise the strategic value of the portfolio of projects that make up the
     to achieve the optimal balance of all stakeholder expectations. It is at the strategy              capital works programme.
     level where the best overall balance between these drivers and needs is sought.                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
STATE OF THE ASSETS                                                                                                                            PERFORMANCE AGAINST TARGET OVERVIEW
The age profile by replacement costs of the entire infrastructure asset base                                                                   Table 2: Current Electricity Asset Performance
(on current replacement costs) is presented as a nine-year moving average and is                                                                Electricity Measure    Measure (2011)        Target for 2013       Commentary
shown in the diagram below.
                                                                                                                                                Network                273.93 min/
Performance looks at the consumer-related service requirements, and the                   Safety is a critical driver of the Asset Management process. Electrical plant and
     confirmation of these requirements through the consumer consultation process.             equipment are capable of causing serious harm. Measures must be taken to ensure, as
     It then looks at the ways in which economic efficiency is assured in the Asset            far as practicable, the safety of employees and the public. To this end, the network must
     Management process, contractor performance, safety performance, environmental             be maintained in a way that meets statutory requirements, follows good engineering
     matters and statutory compliance.                                                         practice, and is considered safe in accordance with recognised industry standards.
     The targets also take into account the type of assets used across our network, and        Safety is determined by a combination of:
     make comparisons with other New Zealand lines companies with the same customer            •   Asset design;
     density and ratio of overhead to underground construction. They also consider past
                                                                                               •   Maintaining the assets in a safe condition;
     planning practice, economic factors, recognised international best practice and safety.
                                                                                               •   Safe operating and work practices; and
     Powerco achieves a balance between owner requirements and legislative, regulatory
     and consumer expectations in setting these performance criteria. The levels of            •   Statute: The Electricity Regulations, Electrical Codes of Practice and the
     service adopted by Powerco for its Asset Management Plan are based on the                     Australian/New Zealand Standard Wiring Rules. There is also the Safety Manual
     internationally recognised measurements, SAIDI, SAIFI and CAIDI (which are                    – Electricity Industry (SM-EI), which contains the framework for Powerco’s
     acronyms for formulae covering the duration and frequency of power outages, and               safety-related network operation. Powerco has now implemented its network
                                                                                                   operating procedures to comply with the requirements of SM-EI. Additionally,
     their customer bases) and accepted New Zealand lines companies’ best practice.
                                                                                                   there are the Building Act, the Health and Safety in Employment Act, the
     Powerco conducts an extensive Customer Communications Programme to verify                     Hazardous Substances and New Organisms Act 1996, and various guides set
     that performance targets match consumer and stakeholder expectations. Consumer                out by the Electricity Engineers’ Association.
     consultation is a requirement of the Commerce Act (Electricity Distribution Thresholds
                                                                                               Powerco has adopted the practice of working as a reasonable and prudent
     Notice 2004). The primary intention of this requirement is to ensure distribution
                                                                                               operator to guide safe Asset Management practices. Its health and safety policy
     businesses effectively consult with, and take into account, the views of their
                                                                                               and procedures are set out in documents in the Powerco Business Management
     customers and stakeholders. Regardless of regulatory requirements, Powerco views
                                                                                               System. Contractors can receive instructions from the Contracts Works Manual and
     consumer consultation as common sense – essentially, our job is made easier if the
                                                                                               the Network Operations Manual, both of which are new initiatives that operate with
     communities in which we operate understand who we are and how our business
                                                                                               online search applications.
     operates. In addition to Powerco-initiated consultation, a database is kept of all
     complaints and suggestions registered by its customers through Powerco’s call             The company carries out a policy of auditing its contractors for health and
     centre. These complaints are mapped by type for later reference in planning activities.   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
     Economic efficiency is an important driver for maintenance, renewal and
                                                                                               improvement on health and safety and have a target number of zero major breaches.
     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.

16   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021
RISK MANAGEMENT                                                                       ASSET LIFE CYCLE PLAN
A large part of the Asset Management process involves managing risks associated       As Powerco’s network continues to age, more investment in renewal and
with the assets on behalf of our stakeholders. For example, public safety risks may   maintenance is required to maintain current reliability levels. Powerco is spending
arise due to inadequately secured equipment, risks of unexpected supply outages       less on asset renewal than what asset age profiles indicate should be spent;
may arise due to inadequately trimmed trees, or there could be inadvertent breaches   however, this must be viewed in the context of regulated allowable revenue. The
of legislation.                                                                       required increase in replacement costs is demonstrated in the following figure.
Powerco’s Board and management are committed to maintaining a business                                               All Assets – Replacement Profile
environment that demonstrates good corporate governance practices. Risk                                        140
management is therefore an integral part of Powerco’s business to support effective
                                                                                                               120
decision-making and provide assurance.

                                                                                       Replacement Cost ($m)
                                                                                                               100
The aim of the risk management programme is to identify and understand the                                      80
likelihood, consequence, control effectiveness, and action plans required to make
                                                                                                                60
risk levels acceptable.
                                                                                                                40
The risk management programme is supported by Powerco’s corporate insurance
                                                                                                                20
programme, which includes low-probability and high-impact events.
                                                                                                                 0
Our approach to risk management is aligned to the new AS/NZS ISO 31000:2009

                                                                                                                      2012

                                                                                                                             2013

                                                                                                                                    2014

                                                                                                                                           2015

                                                                                                                                                  2016

                                                                                                                                                         2017

                                                                                                                                                                2018

                                                                                                                                                                       2019

                                                                                                                                                                              2020

                                                                                                                                                                                     2021

                                                                                                                                                                                            2022

                                                                                                                                                                                                   2023

                                                                                                                                                                                                          2024

                                                                                                                                                                                                                 2025

                                                                                                                                                                                                                        2026

                                                                                                                                                                                                                                2027

                                                                                                                                                                                                                                       2028

                                                                                                                                                                                                                                              2029

                                                                                                                                                                                                                                                     2030

                                                                                                                                                                                                                                                            2031
standard for risk management.
                                                                                                                     ODV Replacement Cost (June 2011 quantities in $2004 terms)                                                Year of Replacement (FY)
                                                                                                                     Current Replacement Cost (including capital efficiency factor)
More in-depth details on Powerco’s risk management programme are provided in                                         9 year rolling average, Current Replacement Cost (including capital efficiency factor)
Section 6 of our full AMP. This section on risk management has now been moved                                        50 Year Average Current Replacement Cost (including capital efficiency factor)
to the middle of the AMP from being at the end. This reflects our view that the                                      Renewal Budget (Real $2011)

management of risks is central to the Asset Management process, rather than being
                                                                                      Figure 12: Total Network Asset Replacement Profile
simply an output.
                                                                                      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 – FY2021                                                                   17
Maintenance Work Types                                                                       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
     Powerco’s maintenance work comprises the following elements:
                                                                                                  network assets (that is, the operation of a system as a whole is dependent on the
     •   Maintenance management and maintenance planning;                                         integrity of several assets). It includes the need to replace equipment because of the
     •   Routine inspections and condition assessments;                                           availability of spares, or for standardisation or changes in technology. This strategy is
                                                                                                  applied to equipment such as zone substation switchgear, SCADA equipment and
     •   Routine servicing;
                                                                                                  protection relays. Reactive renewal strategies are based around the need to renew
     •   Non-routine servicing (overhauls);                                                       assets that have failed and need to be replaced in a short time or to renew assets
     •   Fault first response, callouts;                                                          with a high imminent risk of failure.
     •   Asset relocations (where an asset is simply moved and not replaced);                     Asset Renewal Forecasting Process
     •   Evaluation of inspection and condition-monitoring results to determine any               The most accurate means of forecasting renewal needs for the network is through
         maintenance or renewal requirements (this may be performed in the field at the           knowledge of the condition of the assets. A condition-based renewal programme
         time of inspection/condition-monitoring or later by engineering staff);
                                                                                                  is the most accurate for a period of around one to five years. Beyond this, renewal
     •   Evaluating faults to predict maintenance or renewal requirements;                        forecasts are best made using age profiles.
     •   Performing corrective maintenance or renewal as a result of the above; and               Renewal forecasting involves determining the quantity of assets needing renewal
     •   Service disconnections.                                                                  (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
     Asset Renewal Strategic Themes
                                                                                                  being compiled in the Maintenance Management system, and so the full extent of
     Powerco’s scheduled asset renewal strategy encompasses three main themes, each               condition-based renewal needs is still in progress.
     of which is appropriate for the different asset types.
                                                                                                  Estimates of condition-based renewal forecasts, calculated on the information
     A run-to-failure strategy is applied to assets where the consequences of failure are         available, have been entered into Powerco’s Improvement Register and an extract of
     not major and where the costs of on-going condition-monitoring may outweigh the              the renewal expenditure needs from this is given in Section 10 of the full AMP.
     costs of failure. This strategy is applied to equipment such as small pole-mounted
                                                                                                  Life-Extension Practices
     distribution transformers, underground distribution feeder cable spurs, LV cables,
     expulsive fuses and surge arresters.                                                         Various life-extension techniques have been tried by Powerco, but apart from
                                                                                                  transformer refurbishment, these really apply to only specialised assets, and many of
     A risk- and condition-based replacement strategy is applied where there is a
                                                                                                  the techniques have had only limited degrees of success.
     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            Redeployment, Upgrade and Disposal of Existing Assets
     applied where on-going condition inspections are needed to comply with regulations
                                                                                                  Powerco is presently developing its policy on reusing second-hand materials, such
     or where the costs of condition-monitoring are small compared with the costs
                                                                                                  as poles and conductors, and rotables, such as transformers.
     associated with failure. It is applied to equipment such as poles, cross-arms,
     important distribution feeder cables and zone substation 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
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 – FY2021   19
NETWORK PERFORMANCE ENHANCEMENT                                                         CAPITAL EXPENDITURE
     Powerco’s network enhancement plans encompass:                                          Capital expenditure (capex) is the budget used to create new assets or to increase
     •   Reliability improvements, which take into account feeder reliability performance,   the service performance or potential of an existing asset. The forecast total capital
         historical trends and plans for automation;                                         expenditure to FY2022 is shown in the graph below.

     •   Protection and control developments, including SCADA, load control and                                                   Total Network Capex
         metering;                                                                                                          160

     •   Environmental performance and improvement;                                                                         140

                                                                                                 Nominal Expenditure ($m)
     •   Safety performance enhancement; and                                                                                120

                                                                                                                            100
     •   Smart network implementation.
                                                                                                                             80
     The network enhancement processes are driven by several of the “big picture”                                            60
     strategic themes of renewal and modernisation, automation, safety management and                                        40
     “smartening” the network.                                                                                               20

     The major network enhancement projects Powerco wishes to undertake are                                                  0

                                                                                                                                                                                2011 A

                                                                                                                                                                                         2012 B

                                                                                                                                                                                                  2013 F

                                                                                                                                                                                                           2014 F

                                                                                                                                                                                                                    2015 F

                                                                                                                                                                                                                             2016 F

                                                                                                                                                                                                                                      2017 F

                                                                                                                                                                                                                                               2018 F

                                                                                                                                                                                                                                                        2019 F

                                                                                                                                                                                                                                                                 2020 F

                                                                                                                                                                                                                                                                          2021 F

                                                                                                                                                                                                                                                                                   2022 F
                                                                                                                                   2006 A

                                                                                                                                            2007 A

                                                                                                                                                     2008 A

                                                                                                                                                              2009 A

                                                                                                                                                                       2010 A
     described in the maps that follow in this Summary AMP. All network enhancement
     projects will also go through the multi-stakeholder assessment process.                                                                                                                      Financial Year

                                                                                             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
OPERATIONAL EXPENDITURE
Operational expenditure is the expenditure directly associated with running the          The operational expenditure forecasts are denominated in nominal dollar values in
electricity distribution network that cannot be capitalised. This includes maintenance   line with the disclosure requirements.
expenditure required to operate or maintain the assets to achieve their original
design economic lives and service potentials. Powerco’s maintenance work                                                    Total Opex
comprises the following:                                                                                               60

•   Routine condition-monitoring;                                                                                      50

                                                                                            Nominal Expenditure ($m)
•   Routine servicing;                                                                                                 40
•   Evaluation of inspection and condition-monitoring results to determine any
                                                                                                                       30
    maintenance requirements;
                                                                                                                       20
•   Evaluating faults to predict condition-monitoring and maintenance requirements;
•   Performing maintenance overhauls;                                                                                  10

•   Rotable asset relocation;                                                                                           0

                                                                                                                                                         2009 A

                                                                                                                                                                  2010 A

                                                                                                                                                                           2011 A

                                                                                                                                                                                    2012 B

                                                                                                                                                                                             2013 F

                                                                                                                                                                                                      2014 F

                                                                                                                                                                                                               2015 F

                                                                                                                                                                                                                        2016 F

                                                                                                                                                                                                                                 2017 F

                                                                                                                                                                                                                                          2018 F

                                                                                                                                                                                                                                                   2019 F

                                                                                                                                                                                                                                                            2020 F

                                                                                                                                                                                                                                                                     2021 F

                                                                                                                                                                                                                                                                              2022 F
                                                                                                                             2006 A

                                                                                                                                       2007 A

                                                                                                                                                2008 A
•   Fault repair; and
•   Network operations.
                                                                                         Figure 14: Total Direct Operational Expenditure
Operating and maintenance expenditure also includes direct management costs
not immediately associated with creating network assets, such as customer
management, network planning, network operating and managing service
provider relationships. They include site leases, site service charges, network
insurance, charter payments and other like costs. They may include the costs of
decommissioning existing assets (where a new asset is not created).
The operating and maintenance expenditure forecast has been set based on
benchmarked operational costs per asset replacement cost and per system length,
based on present work levels, after adjustments have been made to allow for
increased service provider efficiency (downwards) and growth in system length and
ODV (upwards). These are confirmed against the asset maintenance plans developed
using the maintenance strategy and Powerco’s present operating practices.
The forecast total operational and maintenance expenditure to FY2022 is shown in
Figure 14 (blue-coloured bars) along with the actual (A) capital expenditure from the
FY2006 to FY2011 periods (purple bars) and the budgeted capital expenditure for
FY2012 (green bar).

                                                                                                                                      SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021                                                                               21
FINANCIAL
     A summary of the forecast capital and maintenance expenditure over the next 10 years is shown in the tables below.
     Table 3: Capital Expenditure Forecast July to June Financial Year ($000) (Nominal $ Values)

      Capex summary breakdown                FY 2006 A FY 2007 A FY 2008 A FY 2009 A FY 2010 A FY 2011 A FY 2012 B   FY 2013 F   FY 2014 F   FY 2015 F   FY 2016 F   FY 2017 F   FY 2018 F   FY 2019 F   FY 2020 F   FY 2021 F   FY 2022 F

      Customer Connection                     23,714    22,076    29,144    29,023    23,153     17,977    18,813     18,167      17,172      16,322      16,681      17,048      17,423      17,806      18,198      18,598      19,008
      System Growth                           11,563    14,472    15,951    18,853    23,424     18,883    24,294     20,490      19,361      19,792      25,283      25,856      26,439      27,037      27,647      28,270      28,892
      Reliability, Safety and Environment      7,413     8,128     8,961    10,986      5,591    12,465    15,081     14,835      15,015      15,226      16,138      17,133      18,155      19,268      20,488      21,817      23,189
      Asset Replacement and Renewal           16,526    14,164    15,626    20,710    21,659     26,209    25,552     33,869      37,264      41,011      45,146      49,728      54,444      59,662      65,436      71,829      78,875
      Asset Relocations                        2,635     2,453     3,238     3,225      1,821     3,092     2,316      2,245       2,342       2,227       2,276       2,326       2,377       2,429       2,483       2,537       2,593
      Total Capex                             61,851    61,293    72,920    82,797    75,647     78,626    86,056     89,608      91,154      94,579 105,523 112,091 118,838 126,202 134,252 143,053 152,558

     Table 4: Operating & Maintenance Expenditure Forecast July to June Financial Year ($000) (Nominal $ Values)

     Opex summary breakdown                  FY 2006 A FY 2007 A FY 2008 A FY 2009 A FY 2010 A FY 2011 A FY 2012 B   FY 2013 F   FY 2014 F   FY 2015 F   FY 2016 F   FY 2017 F   FY 2018 F   FY 2019 F   FY 2020 F   FY 2021 F   FY 2022 F

     System Management and Operations          6,654     6,750     7,627     5,968     6,902      7,239   11,078      11,500      11,996      12,281      12,551      12,827      13,109      13,398      13,692      13,994      14,301
     Routine and Preventive Maintenance        9,427     9,901    11,510    10,394    13,063    13,495    14,053      12,642      12,803      13,783      16,262      16,612      16,971      17,338      17,712      18,147      18,547
     Refurbishment and Renewal Maintenance     7,683     7,615     6,918     8,938     6,783      6,853     7,001      8,428       8,536       9,189      10,841      11,075      11,314      11,559      11,808      12,098      12,364
     Fault and Emergency Maintenance           4,353     4,314     5,990     5,064     5,941      6,826     6,105      7,023       7,113       7,657       9,034       9,229       9,428       9,632       9,840      10,082      10,304
     Total Opex                               28,118    28,580    32,045    30,364    32,688    34,413    38,237      39,593      40,448      42,910      48,688      49,744      50,822      51,926      53,052      54,321      55,516

     Table 5: Total Expenditure Forecast July to June Financial Year ($000) (Nominal $ Values)

     Expenditure Class                       FY 2006 A FY 2007 A FY 2008 A FY 2009 A FY 2010 A FY 2011 A FY 2012 B   FY 2013 F   FY 2014 F   FY 2015 F   FY 2016 F   FY 2017 F   FY 2018 F   FY 2019 F   FY 2020 F   FY 2021 F   FY 2022 F

     Capital Expenditure                      61,851    61,293    72,920    82,797    75,647     78,626   86,056      89,608      91,154      94,579 105,523 112,091 118,838 126,202 134,252 143,053 152,558
     Operating Expenditure                    28,118    28,580    32,045    30,364    32,688    34,413    38,237      39,593      40,448      42,910      48,688      49,744      50,822      51,926      53,052      54,321      55,516
     Total                                    89,969    89,873 104,964 113,161 108,335 113,039 124,293 129,201 131,602 137,489 154,211 161,835 169,660 178,129 187,304 197,374 208,074

22   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021
ASSET MANAGEMENT IMPROVEMENT                                                             SERVICE PROVISION STRATEGY
Powerco has a philosophy of continual improvement in its Asset Management and            Powerco has reviewed its service provision strategy and set the long-term direction
customer management processes (as well as other business processes).                     for the management of construction and maintenance activities in line with its
                                                                                         business model and corporate objectives.
A gap analysis of the level of maturity of Powerco’s electricity network Asset
Management processes is presented in Section 11 of the full AMP, along with              The service provision strategy was revised during 2010 and the updated strategy is
specific system improvement projects.                                                    given below. The strategy was reviewed giving consideration to:
                                                                                         •   Safety performance;

INFORMATION SYSTEMS                                                                      •   Powerco’s corporate business drivers, including productivity improvement;
                                                                                         •   Requirements to show cost effectiveness to Regulators;
Given Powerco’s history of growth and acquisition, standardisation of systems and        •   The current capabilities, strengths and weaknesses of the service provision market;
processes are key strengths of Powerco’s employees and this has been a significant       •   The needs of the service providers; and
focus for management over recent years.
                                                                                         •   The capabilities of the Asset Management Group in managing the outsourcing
A range of information systems has been implemented at Powerco to support the                of construction and maintenance activities.
Asset Management processes, covering spatial network data; works and financial
                                                                                         Powerco will increasingly use competitive market principles to deliver sustainable
management; and real-time operation and control of the network. Powerco has also
                                                                                         improvements in the cost, quality and safety of construction and maintenance
established a continuous improvement team to deliver incremental improvements
                                                                                         services on the electricity and gas networks. The elements of the revised service
in systems, data and processes, and a range of significant data and system
                                                                                         provision strategy are:
rationalisation projects are being undertaken.
                                                                                         •   Facilitating service provider resources with expertise matched to the work
Under continual refinement is Powerco’s maintenance management system, which                 requirement in the locations required;
includes the progressive roll-out of field automation. A significant recent refinement   •   Allowing appropriate levels of service provider’s control over the inputs to its
is the delivery of applications to service provider PCs and mobile devices, enabling         services to allow it to meet the service performance level;
field-capture of asset condition, defect and maintenance activity records, scheduled
                                                                                         •   Utilising competitive tension through market-based mechanisms, such as tendering,
maintenance activity completion, prescribed test results and corrective maintenance
                                                                                             to encourage continuous improvement in the cost of the delivered service;
work instructions.
                                                                                         •   Setting the appropriate level of management of service providers while ensuring
                                                                                             maximum control is maintained to deliver the desired service outcome;
                                                                                         •   Maintaining a superior level of safety performance by service providers;
                                                                                         •   Fairly allocating risk between Powerco and the service provider; and
                                                                                         •   Creating and maintaining a strong body of network field knowledge within Powerco.
                                                                                         The service provision principles describe the use of tendered contracts with
                                                                                         service providers. It is considered that this style of contract is the most appropriate
                                                                                         commercial arrangement for Powerco to move ahead with its service providers for
                                                                                         core construction and maintenance activities. Powerco’s Service Delivery strategy
                                                                                         continues to deliver strong results in works completion performance.

                                                                                                        SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2012 – FY2021         23
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