SUMMARY ASSET MANAGEMENT PLAN

 
SUMMARY ASSET MANAGEMENT PLAN
SUMM ARY A S s E T MA N A G E M EN T P LAN
IN FOR m AT I O N D I S CLO S U R E FO R
EL EC T R I C I T Y NET W O R KS
2011– 2 0 2 1

                                             ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021   1
SUMMARY ASSET MANAGEMENT PLAN
contents

                                                                         CHIEF EXECUTIVE’S STATEMENT.................................................................. 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?.................................................. 11
                                                                         STATE OF THE ASSETS................................................................................ 15
                                                                         PERFORMANCE AGAINST TARGET OVERVIEW........................................... 15
                                                                         RISK MANAGEMENT.................................................................................... 17
                                                                         ASSET LIFECYCLE PLAN............................................................................. 17
                                                                         NETWORK DEVELOPMENT PLAN................................................................ 19
                                                                         NETWORK PERFORMANCE ENHANCEMENT.............................................. 20
                                                                         CAPITAL EXPENDITURE............................................................................... 20
                                                                         OPERATIONAL EXPENDITURES................................................................... 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 FY2011 – FY2021
SUMMARY ASSET MANAGEMENT PLAN
SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021   1
SUMMARY ASSET MANAGEMENT PLAN
Chief Executive’s Statement
    Welcome to the 2011 edition of our Summary Asset Management Plan (AMP).                   continue to augment network security and capacity. We are committed to meeting
                                                                                              our regulatory obligations. However, the combination of an ageing network,
    During the past 12 months we have seen continued growth in demand for electricity
                                                                                              increasing electricity demand, customers’ desire for reliable electricity supply and the
    and we expect demand to grow in the immediate and long term. Such growth places
                                                                                              constraints on investment mean that Powerco faces significant challenges.
    pressure on our ageing network to continue to provide a reliable supply of electricity.
    In response, we continue to increase the level of expenditure on the network (which       As a result of the severe storms that we experienced last year – in particular, the
    has increased by more than 100% since 2002). Our underlying network reliability           multi-day events that were a feature of September 2010 – and depending on how
    performance continues to be more than satisfactory.                                       the Commerce Commission treats multi-day storm events, there is a risk that we will
                                                                                              not meet our regulatory reliability target for 2011. This would be disappointing, given
    Severe storms have also been a feature of the past 12 months. Our ability to
                                                                                              the significant and increased investment that Powerco has made in recent years.
    maintain a reliable supply of electricity during severe storms is dependent, amongst
    other things, on the level of redundancy and the age and condition of our network.
                                                                                                                                 Actual and Forecast SAIDI Reliability
    I am pleased to report that Powerco’s network assets continue to perform well in                                       350
                                                                                                                                                                                      Forecast Mar 2011 SAIDI           Deterioriating reliability due
    meeting the on-going growth in demand. Consistent progress has been made in                                                                                                        after normalising as per          to regulation constraining
                                                                                                                                                                                              DPP rules                         expenditure
    maintaining a reliable supply despite the regulatory regime constraining investment,                                   300

                                                                                               SAIDI (Class B+C) minutes
    given the ageing of the network. Our progress is evidenced by Powerco’s network
                                                                                                                           250
    having significantly fewer faults per kilometre on average than our peers and the
    approximately 10% reduction in faults per kilometre since 2005. Our Bring Line
                                                                                                                           200
    Interruptions To Zero (BLITZ) strategy of targeted renewal has meant that our network
    performed better during the severe storms than it has during previous events.                                          150

    Our ability to meet the challenges of growth with ageing network assets and to keep
                                                                                                                           100
    the lights on during extreme events is, in part, the result of the comprehensive and

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    intensive analysis and planning that we undertake every year and which is detailed in
                                                                                                                                                                                                                                                 Year
    the full 2011 Powerco Asset Management Plan.                                                                                         Actual Reliability (After Normalising for           Forecast Reliability                       (Ending March)
                                                                                                                                         Single-Day Major Event Days)                        (April 11 AMP spend)
    For the past 12 years, the Asset Management Plans have provided the blueprint for                                                    Forecast Reliability (After Normalising
                                                                                                                                         for Sept 2010 Multiple-Day Severe Storm)
    the management and development of the vast and complex network of Powerco’s                                                          Actual Reliability (Before Normalisation            Regulatory Threshold
                                                                                                                                         for Major Event Days)
    assets. Previous plans have identified the need for increased investment in targeted
    areas of the network to maintain reliability of supply. During the past eight years, we   Figure 1: Forecast Supply Reliability Performance
    have doubled our investment in the network, with a focus on bringing aged (in many
    cases over 50 years old) assets up to standard. We have increased our focus on            Powerco takes seriously the risk of failure to meet its regulatory targets for 2011 and
    security, building redundancy into the backbone of the network to improve reliability     we will be working hard to achieve these targets in 2012. We are reviewing our works
    and the network’s capacity to accommodate growth.                                         programmes for 2012 to target solutions that improve reliability, consistent with our
                                                                                              key asset management strategies. With that said, Powerco’s geographical spread
    The 2011 AMP forecasts further growth in demand, both in volume and peak
                                                                                              and more than 30,000 kilometres of lines means that the risk of future breaches due
    demand across all regions. To accommodate the forecast growth, we will need to
                                                                                              to extreme weather events will always exist. Further, we will be engaging with the

2   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021
SUMMARY ASSET MANAGEMENT PLAN
Commerce Commission and are hopeful that the Commission will, when it finalises               •   Continuing the development of design, construction and maintenance
its enforcement guidelines, adopt the same approach to multiple-day severe storms                 standards, which lead to lower risk profiles in the network and greater
as it did in the past. If the Commission were to treat the September 2010 storms in               consistency of application across the network. Further investment in the
the same manner as the similarly destructive February 2004 storms, we would meet                  standardisation of systems and processes will allow us to extend asset lives.
our 2011 regulatory target.                                                                   •   Taking further steps along the Smart grid road map, to becoming a Smart
The 2011 AMP commits Powerco to $114 million of capital and maintenance                           network. The aims of Smart networks include self-healing equipment and
expenditure, an increase of $3 million over last year. We are forecasting this growing            processes. Well thought out and implemented network automation offers exciting
to $167 million by 2021. Nothing is more important to me than the safety of our staff,            performance benefits. Network automation, combined with increased feeder
contract staff and the public. Every project is evaluated against health and safety               interconnections, also fit well with our business plan objectives of improving
drivers and against the health and safety risk it mitigates. Priority will be given to            reliability through automated solutions and managing increasing investment profiles
those projects that are considered necessary to minimise risks to health and safety.              through non-asset solutions. The 2011 AMP sets out initiatives that are consistent
                                                                                                  with the EPRI and Energy Networks Australia visions of Smart networks.
Powerco has demonstrated strong capability in our asset management processes and
performance compared with our peers in New Zealand. However, our processes and                Some of these strategies are straightforward; others such as Smart networks are
systems compare less favourably with Australian utilities. If we are to be of international   innovative and world class. All are designed to ensure that the investment meets
standard in meeting the expectations of our customers and the requirements of                 short-term requirements and builds long-term value.
regulators then an investment in our processes and systems must be made.                      We have a responsibility to provide a safe, secure and reliable supply of electricity
The investment called for in the AMP will, as always, be carefully targeted to                to our customers and we have worked hard to achieve this efficiently. It is a
solutions that will ensure our electricity network improves in service and reliability.       responsibility that I, and all Powerco employees, take very seriously. We recognise
Key strategies to achieve this are detailed in the AMP and include:                           that, due to ageing of the network and increased demand, we have a significant
                                                                                              challenge to meet the required investment under the existing regulatory settings.
•   Increasing the commitment to the principle that all occupational injuries are
                                                                                              However, it is a challenge that, through careful planning and innovative strategies,
    preventable. We have initiated a programme to further advance best practice health
                                                                                              we can rise to.
    and safety initiatives across the business and that of our contracting partners.
•   Modernisation of the network through the replacement and updating of our                  The full Asset Management Plan provides more detail on the issues I have discussed.
    aged assets.                                                                              It also describes in detail our plan for addressing each issue. We look forward to
                                                                                              discussing our plans with you.
•   Increasing the redundancy of the core network through increasing
    subtransmission lines and zone substation capacity.
•   Continuing to improve our fault location, isolation and supply restoration
    capability through increasing sectionalisation and installing more distribution
    automation, such as auto reclosers.
•   Standardisation of systems and processes is a key strength of Powerco’s                   Nigel Barbour
    employees and it has been a significant focus for management. As a result,                Acting Chief Executive
    we have been able to develop a common maintenance management system
    and a suite of information system projects directed at improving processes.

                                                                                                            SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021          3
SUMMARY ASSET MANAGEMENT PLAN
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 13 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 FY2011 – FY2021
SUMMARY ASSET MANAGEMENT PLAN
Figure 2: 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          industrial and commercial
also entitled to sell electricity       transmitting bulk electricity from   cables by local distribution (lines)     the industry, along with their     consumers also purchase
to consumers and energy                 generation sites to distributors.    companies. There are currently           own costs to run a retail          electricity from retail companies
retailers. Numerous generation          Transpower transmits electricity     29 distribution companies,               business and provide electricity   but may also have the option
sites around the country supply         from generating stations to          which operate within set                 consumers with a monthly           of contracting directly with
electricity to the National Grid.       178 Grid Exit Points (GXPs)          boundaries and range from                bill. They set the final price     distribution companies for
                                        around New Zealand. These            publicly listed companies to             consumers pay for electricity.     electricity distribution services.
                                        GXPs are the points of supply        community-owned trusts.                  These companies are also
                                        for distribution networks like                                                allowed to participate in the
                                                                             The 1998 Electricity Reform
                                        Powerco’s.                                                                    generation sector.
                                                                             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 FY2011 – FY2021        5
SUMMARY ASSET MANAGEMENT PLAN
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 4295 GWh of electricity through 30,035km of lines    OPERATIONS
    and cables to more than 316,000 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 the Coromandel Peninsula, Thames Valley, Tauranga and
    Western Bay of Plenty, South and East Waikato, Taranaki, Wanganui, Rangitikei,
    Manawatu, Tararua and Wairarapa.
                                                                                                  Electricity Networks
                                                                                                  Electricity distribution networks in the
                                                                                                  Tauranga, Thames, Coromandel, Eastern
                                                                                                  and Southern Waikato, Rangitikei,
                                                                                                  Taranaki, Wanganui, Manawatu and
                                                                                                  Wairarapa regions.

                                                                                            Figure 3: Powerco Electricity Network Operations Map

6   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021
SUMMARY ASSET MANAGEMENT PLAN
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
                                                                                                                                                            2,500,000
summary of the assets covered.
                                                                                                                                                            2,000,000
            Electricity Network Replacement Cost by Asset Type

                                                                                                                                  Replacement Cost ($000)
                                                          1,000                                                                                             1,500,000

                                                               800                                                                                          1,000,000

                                                    $million   600                                                                                           500,000

                                                               400                                                                                                 0
                                                                                                                                                                           Overhead             Underground           Transformers   Switchgear          Substations

                                                               200
                                                                                                                                                                          Assets Valued at ODV Replacement Cost
                                                                                                                                                                          Assets Valued at Current Replacement Cost                                     Asset Category
                                                                0
                                                                                                                                 Figure 6: Replacement Cost by Asset Category
           Overhead Line            Underground Cable                Distribution Transformers         Distribution Switchgear

              Zone Substations              SCADA/Comms/Ripple               Spares (Emergency & Critical)                       Table 1: Key Network Statistics

                                                                                                                                                                                                                                                  Southern &
Figure 4: Electricity Network Asset Replacement Cost by Asset Type (2004 ODV Valuation)                                            Key Network Statistics as at 31 March 2010                                                        Eastern        Western            Total

                                                                                                                                   Length of Overhead Circuit (km)                                                                   8,370          14,245        22,615
            Electricity Network Replacement Cost by Function                                                                       Length of Underground Circuit (km)                                                                4,402           3,018         7,420
                                                          1,000
                                                                                                                                   Subtransmission Circuit Length (km)                                                                 587           1,008         1,595
                                                               800                                                                 Distribution Circuit Length (km)                                                                  5,869          10,368        16,237

                                                               600
                                                                                                                                   Low-Voltage Circuit Length (km)                                                                   6,316           5,887        12,203
                                                    $million

                                                                                                                                   Number of Zone Substations and Switching Stations                                                     45              68            113
                                                               400
                                                                                                                                   Zone Substation Transformer Capacity (MVA)                                                          649             758         1,407
                                                               200
                                                                                                                                   Distribution Transformer Capacity (MVA)                                                           1,418           1,517         2,935

                                                                0

                  Subtransmission            Zone Substation & GXP              Protection & Control           Distribution

                  Distribution Substation         Low Voltage                Spares (Emergency & Critical)

Figure 5: Electricity Network Asset Replacement Cost by Functional Category (2004 ODV)

                                                                                                                                                                           SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021                                  7
SUMMARY ASSET MANAGEMENT PLAN
THE ASSET MANAGEMENT PLAN AND PROCESS
    With Powerco’s electricity network assets ranging in age from new to more than
                                                                                              Who wants what             What performance are    How are we managing       What does this mean for   How can we improve?
    50 years old, effective long-term planning is a fundamental requirement of our            from the assets?           we targeting from the   the network and solving   the works programmes
                                                                                                                         assets? How are we      any performance gaps?     and required
    business. Our AMP is an integral part of that planning because it not only explains       What is the state of the
                                                                                              assets?
                                                                                                                         doing vs. the target?                             expenditure?
                                                                                                                         What are the gaps?
    Powerco’s management and maintenance policies, but also sets out our plans for
    focused investment in security, capacity and reliability of an ageing network that
    is facing constantly rising levels of demand. This means Powerco has increasing
    investment requirements as assets progressively reach the end of their useful lives.      Section 2                  Section 4               Section 7                 Section 7, 8              Section 11
                                                                                              Define                     Set Performance         Set Asset                 and 9                     Develop AM
    The full AMP contains specific details on Powerco’s short- and long-range planning        Stakeholders               Targets                 Lifecycle Strategy        Develop Work              Improvement
    for network development, renewal and maintenance. In other words, the AMP is a            Define AM Drivers                                  Analyse Renewal           Programmes                Initiatives
                                                                                                                         Section 5               Needs                     Linked with AM
    high-level document providing management, stakeholders and any interested parties                                    Performance                                       Driver
    with a broad overview of Powerco’s asset management policies, asset details,              Section 3                  Evaluation              Section 8
                                                                                              Describe Assets                                    Security Criteria         Section 10
    service levels, capital and maintenance works planning, expenditure forecasts, risk                                  Section 6
                                                                                                                                                 Prepare Load              Set Expenditure
    management and performance evaluation.                                                                               Analyse Network         Forecasts                 Forecasts
                                                                                                                         Risks
                                                                                                                                                 System Growth
    Incorporating information from a range of other internal documents, the AMP sets                                                             Needs
    out the performance criteria for the assets, and summarises the actions needed to
                                                                                                                                                 Section 9
    achieve those performance criteria.                                                                                                          Reliability, Safety,
                                                                                                                                                 Environment
    Developing the AMP is a key step in ensuring that the needs of all stakeholders are                                                          Enhancement
    properly considered and incorporated into Powerco’s long-term asset management                                                               Needs
    strategies. It also ensures that plans provide, subject to any regulatory constraints,                                                       Protection
                                                                                                                                                 & Control,
    the optimum balance between levels of service and the efficient costs to provide                                                             Smart Network
    the required service. Figure 7 illustrates the structure of the full AMP and what each                                                       Development
    section is trying to address.
                                                                                             Figure 7: Structure of the Asset Management Plan and Process

8   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – 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 business
which is intended to identify the key issues relevant to the majority of interested        operations. This is the key interface for customer consultation and corporate strategy.
parties. Anyone interested in Powerco’s AMP or operations in general is encouraged
                                                                                           Planning
to read this summary to learn more about our business and what we are trying to
achieve on behalf of all our stakeholders. If further information is required, Powerco’s   This process involves planning for the renewal, development, maintenance and
full AMP is available at www.powerco.co.nz/Financial/Stat_Docs/Asset_Disclosures/          operation of the assets.

Please note, this Summary AMP is intended to be consistent with the full AMP               Service provision
published in April 2011. 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 publish 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
AMP, our full AMP, or any aspect of our business or the electricity industry. Feedback     Information
can be provided in the following ways:
                                                                                           This involves the maintenance of, and reporting from, the asset information databases.
•   By email: corp_office@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 FY2011 – 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 9 shows the increase in forecast renewal
                                                          eas, the oth
                                              f   these ar            er tw                            expenditure.
                                          ne o                             oa
                                        no                                   rea
                                     uto                                        sw
                                   sp                                             ill
                                 si                                                     be                                                 Asset Renewal Capital & Operational Expenditure
                               cu
                          fo

                                                                                         co
                                                                                                                                      80                                                                                                                                                     2.000
                           h

                                                                                           m
                         uc

                                                                                            pr
                       om

                                                                                              om
                                                                                                                                      70                                                                                                                                                     1.750

                                                                                                ise
                  If to

                                                                                                         Nominal Expenditure ($000)
                                                                                                                                                                                                                                                                                             1.500

                                                                                                   d
                                                                                                                                      60

                                                                        LEVEL

                                                                                                                                                                                                                                                                                                     Inflation Index
                                                                                                                                      50                                                                                                                                                     1.250
                                   COST
                                                                        OF RISK                                                       40                                                                                                                                                     1.000

                                                                                                                                                                                                                                                                                             0.750
                                                   NETWORK                                                                            30

                                                    ASSETS                                                                            20                                                                                                                                                     0.500

                                                                                                                                      10                                                                                                                                                     0.250

                                                                                                                                       0                                                                                                                                                     0

                                                                                                                                                                       2009 A

                                                                                                                                                                                2010 A

                                                                                                                                                                                                  2012 F

                                                                                                                                                                                                                     2014 F

                                                                                                                                                                                                                              2015 F

                                                                                                                                                                                                                                       2016 F

                                                                                                                                                                                                                                                2017 F

                                                                                                                                                                                                                                                         2018 F

                                                                                                                                                                                                                                                                  2019 F

                                                                                                                                                                                                                                                                           2020 F
                                                                                                                                            2006 A

                                                                                                                                                     2007 A

                                                                                                                                                                                         2011 B

                                                                                                                                                                                                           2013 F

                                                                                                                                                                                                                                                                                    2021 F
                                                                                                                                                              2008 A
                                             PERFORMANCE
                                                LEVELS
                                                                                                                                                     Asset Replacement and Renewal                                  Refurbishment and                       Year (ending June)
                                                                                                                                                     Inflation Index                                                Renewal Maintenance

                                                                                                       Figure 9: Actual and Forecast Asset Renewal Capital and Maintenance Expenditure

     Figure 8: Cost, Performance and Risk Balance

10   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021
WHO WANTS WHAT FROM THE ASSETS?

2. Increasing the redundancy (duplication) of the core network:                          The following figure illustrates the relationship between Powerco’s main stakeholders,
Redundancy means that if one critical component fails or needs to be taken out           their drivers and the asset management process. The diagram now includes a
of service, there is another component ready to continue supply. This includes           recognition of the business planning process as the stakeholder drivers are equally
increasing zone substation capacity and installing more network automation. Powerco      (and in some cases more appropriately) applicable to the business planning process.
has identified the potential for 17 zone substations to be built and 20 additional
transformer banks to be installed at existing substations over the next 10 years.           Customers/                              Government &                         Owners & Lenders                          Employees &
                                                                                            Consumers                               Regulator                                                                      Contractors
3. Standardising systems and processes: This is a key strength of Powerco’s
employees and a significant focus for management. Powerco has developed a
common maintenance management system and an integrated, easily accessible                   Service/Price Safety Load            Economic Efficiency
                                                                                                                                 (Long-Term Interest of Consumers)
                                                                                                                                                                         Long-Term Value
                                                                                                                                                                         (Productivity & Utilisation)
                                                                                                                                                                                                                   Safety Workflow Certainty
                                                                                            Growth                                                                                                                 Market Costs
suite of information systems. There has also been continuing development of design,                                              Environmental Safety & Compliance       Risk Management

construction and maintenance standards, which lead to lower risk profiles in the
network and less reliance on field staff. Further investment in the standardisation of                                                          Business Planning Process
systems and processes will allow us to extend asset lives.                                                                                     Asset Management Process
4. Distribution automation and more interconnections at feeder level:
                                                                                                                                                                                                        Development, Renewal,
Smart network plans, which are a recent addition to Powerco’s AMP, aim to be                                                                                                                            Maintenance, Operation

self-healing and capable of shifting the load from peak times. They are something                     Asset Performance Asset Age/Condition

to which regulators in many countries are now paying greater attention because
                                                                                                                                                                Assets
they are perceived to offer customers improvements in performance and cost.
Smart networks, which offer flatter, more manageable patterns of demand, fit well
                                                                                         Figure 10: Powerco Stakeholders and Drivers of the Asset Management Process
with Powerco’s business plan objectives of improving reliability through automated
solutions, and managing increasing investment profiles through non-asset solutions.
5. Continuous improvement and optimisation of our inspection and
maintenance standards: Powerco’s Network Standards set the requirements
for the design and construction of equipment. Our standards also set out our
requirements for maintenance inspections and servicing, and guidelines for the
overhaul of equipment. The standards reflect the range of different contractor drivers
in place across Powerco’s network as well as a need to prevent corner-cutting,
while not disallowing new ways of doing things. The standards and policies follow a
continuous improvement process whereby the standards are challenged as they are
used. Input to the standards preparation and update process can arise during semi-
regular standards road shows, through the field work audit process or if anyone has
a new idea that should be tried out.

                                                                                                                  SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021                                                           11
Powerco uses a range of best-practice methods to undertake consultation and to
     identify stakeholder interests, including, but not limited to:
     •   Key Account Managers assigned to liaise directly with large or industrial
         consumers.
     •   Consumer surveys conducted at events like the Mystery Creek and Central
         Districts Agricultural Field Days. Surveys are designed to help Powerco
         understand if consumer expectations about the quality of their electricity supply
         are being met. Attendance of Powerco staff at these events also provides
         consumers with an opportunity to discuss any concerns they may have directly
         with Powerco.
     •   Workshops and focus group meetings with regulators, consumers and
         consumer representative groups.
     •   Various media communication channels, such as newspaper and radio
         advertising and Powerco’s website.
     In addition to the above, Powerco has a Consultation Manager dedicated to
     planning and co-ordinating consultation activities and maintaining relationships with
     key stakeholders. Feedback obtained through consultation is incorporated into
     Powerco’s asset management planning to help ensure Powerco’s plans are aligned
     with consumer and stakeholder expectations.                                             Powerco operated an information kiosk in Tauranga’s CBD for five days during February
                                                                                             2011. This provided Western Bay of Plenty residents with an opportunity to learn more about
                                                                                             Powerco’s plans for the region and other things, such as the structure of the New Zealand
                                                                                             electricity industry, regulation and pricing. It also provided an opportunity for residents to give
                                                                                             feedback directly to Powerco.

12   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021
Figure 11 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

Powerco’s stands at both the Mystery Creek and Central Districts Agricultural Field Days     Figure 11: Illustration of the Influence of Asset Management Drivers
are always popular. Powerco attends these events to survey consumers about the quality of
their electricity supply and to provide consumers with an opportunity to have face-to-face   The diagram reflects the current situation, which can be summarised as upwards
discussions with Powerco staff.                                                              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 FY2011 – 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 be 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 2.6 of the full AMP.

14   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021
STATE OF THE ASSETS                                                                                                                         PERFORMANCE AGAINST TARGET OVERVIEW
The age profile by replacement costs of the entire infrastructure asset base (on                                                            The following table shows Powerco’s key performance measures.
current replacement costs) is presented as a nine-year moving average and is shown                                                          Table 2: Current Electricity Asset Performance
in the diagram below.
                                                                                                                                             Electricity Measure    Measure (2010)            Target for 2012   Commentary

                                       Total Asset Replacement Cost vs Age                                                                   Network                290.7 min/customer        170 min/          Reliability levels have been static.
                                                                                                                                             reliability            (actual)                  customer          Price has been decreasing in real
                             120,000
                                                                                                                                             (SAIDI)                                                            terms, hence customers’ current
                                                                                                                                                                    196.7 min/customer
                                                                                                                                                                                                                price/quality trade-off has been
                             100,000                                                                                                                                (excl storms)
                                                                                                                                                                                                                improving in general terms
   Replacement Cost ($000)

                              80,000                                                                                                         Network                2.76 interruptions/       2.56              See above
                                                                                                                                             reliability            customer (actual)         interruptions/
                              60,000                                                                                                         (SAIFI)                                          customer
                                                                                                                                                                    2.61 interruptions/
                                                                                                                                                                    customer (excl storms)
                              40,000
                                                                                                                                             Customer               11.2 ICPs/km              N/A               Urban/rural mix, below weighted
                              20,000                                                                                                         density                                                            industry average

                                  0                                                                                                          Average                13.4 MWh/ICP              N/A               Low (presenting growth opportunity).
                                       0      5     10   15    20      25      30      35     40    45      50     55       60   65   ODL    consumption                                                        Benchmarking weakness
                                                                                    Age (Years)
                                                                                                                                             Direct                 $1057/km                  $1266/km          Efficient level of spend, in efficient
                                           Substations    Switchgear        Transformers      Underground        Overhead                    operating                                                          quartile for the industry
                                                                                                                                             costs
Figure 12: Total Asset Age Profile
                                                                                                                                             Capex spend            6.9% of RAB               N/A               Efficient level of spend, around the
                                                                                                                                                                                                                median for the industry
Condition monitoring shows that the assets are generally in the condition expected
of their age.                                                                                                                                Asset                  $32,450/km,               $4000/ICP         Efficient, particularly when compared
                                                                                                                                             investment             $3012/ICP                                   to similar density EDBs

                                                                                                                                             Load factor            67%                       65%               High load factor, good spread of
                                                                                                                                                                                                                customer load

                                                                                                                                             Capacity               29%                       30%               Low utilisation reflecting rural
                                                                                                                                             utilisation                                                        network. Benchmark weakness

                                                                                                                                             Security               Substation and feeder     N/A               Appropriate, standards are
                                                                                                                                                                    security                                    commensurate with load, current
                                                                                                                                                                                                                situation reflects more from historic
                                                                                                                                                                                                                standards to new standards and new
                                                                                                                                                                                                                load growth

                                                                                                                                             Asset                  25 years average age      N/A               Asset condition well monitored,
                                                                                                                                             condition                                                          appropriate asset condition
                                                                                                                                                                    Asset condition reports
                                                                                                                                                                                                                commensurate with age, but
                                                                                                                                                                                                                increasing investment profile

                                                                                                                                                                   SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021                    15
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,
     It then looks at the ways in which economic efficiency is assured in the asset            as far as practicable, the safety of employees and the public. To this end, the
     management process, contractor performance, safety performance, environmental             network must be maintained in a way that meets statutory requirements, follows
     matters and statutory compliance.                                                         good engineering 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
     make comparisons with other New Zealand lines companies with the same customer            Safety is determined by a combination of:
     density and ratio of overhead to underground construction. They also consider past        •   Asset design;
     planning practice, economic factors, recognised international best practice and safety.
                                                                                               •   Maintaining the assets in a safe condition;
     Powerco achieves a balance between owner requirements and legislative, regulatory
                                                                                               •   Safe operating and work practices; and
     and consumer expectations in setting these performance criteria. The levels of
     service adopted by Powerco for its Asset Management Plan are based on the                 •   Statute: The Electricity Regulations, Electrical Codes of Practice and the
     internationally recognised measurements, SAIDI, SAIFI and CAIDI (which are                    Australian/New Zealand Standard Wiring Rules. There is also the Safety Manual
     acronyms for formulae covering the duration and frequency of power outages, and               – Electricity Industry (SM-EI), which contains the framework for Powerco’s
     their customer bases) and accepted New Zealand lines companies’ best practice.                safety-related network operation. Powerco has now implemented its network
                                                                                                   operating procedures to comply with the requirements of SM-EI. Additionally,
     Powerco conducts an extensive Customer Communications Programme to verify                     there are the Building Act, the Health and Safety in Employment Act, the
     that performance targets match consumer and stakeholder expectations. Consumer                Hazardous Substances and New Organisms Act 1996, and various guides set
     consultation is a requirement of the Commerce Act (Electricity Distribution Thresholds        out by the Electricity Engineers’ Association.
     Notice 2004). The primary intention of this requirement is to ensure distribution
                                                                                               Powerco has adopted the practice of working as a reasonable and prudent
     businesses effectively consult with, and take into account, the views of their
                                                                                               operator to guide safe asset management practices. Its health and safety policy
     customers and stakeholders. Regardless of regulatory requirements, Powerco views
                                                                                               and procedures are set out in documents in the Powerco Business Management
     consumer consultation as common sense – essentially, our job is made easier if the
                                                                                               System. Contractors can receive instructions from the Contracts Works Manual and
     communities in which we operate understand who we are and how our business
                                                                                               the Network Operations Manual, both of which are new initiatives that operate with
     operates. In addition to Powerco-initiated consultation, a database is kept of all
                                                                                               online search applications.
     complaints and suggestions registered by its customers through Powerco’s call
     centre. These complaints are mapped by type for later reference in planning activities.   The company carries out a policy of auditing its contractors for health and
                                                                                               safety compliance, along with their quality of workmanship. Health and safety
     Economic efficiency is an important driver for maintenance, renewal and
                                                                                               audit breaches are divided into major and minor. We have a focus on continual
     development work. A large proportion of repair work, refurbishment and asset
                                                                                               improvement on health and safety and have a target number of zero major breaches.
     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 FY2011 – FY2021
RISK MANAGEMENT                                                                            ASSET LIFECYCLE PLAN
A large part of the asset management process involves managing risks associated with       As Powerco’s network continues to age, more investment in renewal and
the assets on behalf of our stakeholders. For example, public safety risks may arise due   maintenance is required to maintain current reliability levels. Powerco is spending
to inadequately secured equipment, risks of unexpected supply outages may arise due        less on asset renewal than what asset age profiles indicate should be spent;
inadequately trimmed trees, or there could be inadvertent breaches of legislation.         however, this must be viewed in the context of regulated allowable revenue. The
                                                                                           required increase in replacement costs is demonstrated in the following figure.
Powerco’s Board and management are committed to maintaining a business
environment that demonstrates good corporate governance practices. Risk
management is therefore an integral part of Powerco’s business to support effective                                         All Assets Replacement Profile
decision-making and provide assurance.                                                                                140

The aim of the risk management programme is to identify and understand the                                            120

                                                                                              Replacement Cost ($m)
likelihood, consequence, control effectiveness, and action plans required to make                                     100
risk levels acceptable.                                                                                                80

The risk management programme is supported by Powerco’s corporate insurance                                            60
programme, which includes low-probability and high-impact events.                                                      40

Our approach to risk management is aligned to the new AS/NZS ISO 31000:2009                                            20
standard for risk management.                                                                                           0

                                                                                                                              2011

                                                                                                                                     2012

                                                                                                                                            2013

                                                                                                                                                   2014

                                                                                                                                                          2015

                                                                                                                                                                 2016

                                                                                                                                                                        2017

                                                                                                                                                                               2018

                                                                                                                                                                                      2019

                                                                                                                                                                                             2020

                                                                                                                                                                                                    2021

                                                                                                                                                                                                           2022

                                                                                                                                                                                                                  2023

                                                                                                                                                                                                                         2024

                                                                                                                                                                                                                                2025

                                                                                                                                                                                                                                        2026

                                                                                                                                                                                                                                               2027

                                                                                                                                                                                                                                                      2028

                                                                                                                                                                                                                                                             2029

                                                                                                                                                                                                                                                                    2030
More in-depth details on Powerco’s risk management programme are provided in
Section 6 of our full AMP. This section on risk management has now been moved                                               ODV Replacement Cost (March 2010 quantities in $2004 terms)                                                Year of Replacement (FY)

to the middle of the AMP from being at the end. This reflects our view that the                                             Current Replacement Cost (including 2.9 capital efficiency factor)
                                                                                                                            9 year rolling average, Current Replacement Cost (including capital efficiency factor)
management of risks is central to the asset management process rather than being
                                                                                                                            50 Year Average Current Replacement Cost (including capital efficiency factor)
simply an output.                                                                                                           Renewal Budget (Real $2010)

                                                                                           Figure 13: Total Network Asset Replacement Profile

                                                                                           A number of renewal projects are described in the maps that follow in this summary
                                                                                           AMP. The maps show the major projects Powerco wishes to undertake prior to
                                                                                           application of the multi-stakeholder assessment process described earlier.

                                                                                                                                 SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021                                                                        17
Maintenance Work Types                                                                      An age- and obsolescence-based replacement strategy is applied to assets with a
     Powerco’s maintenance work comprises the following elements:                                high level of technical complexity or a high level of interconnectedness with other
                                                                                                 network assets (that is, the operation of a system as a whole is dependent on the
     •   Maintenance management and maintenance planning;                                        integrity of several assets. It includes the need to replace equipment because of
     •   Routine inspections and condition assessments;                                          availability of spares, or for standardisation or changes in technology. This strategy is
     •   Routine servicing;                                                                      applied to equipment such as zone substation switchgear, SCADA equipment and
                                                                                                 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’ hence. Beyond this,
     •   Evaluating faults to predict maintenance or renewal requirements;                       renewal 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 risk, significant
     reliability of supply consequence 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 FY2011 – FY2021
NETWORK DEVELOPMENT PLAN
The network security criteria describe the factors considered when preparing the long-   Figure 14 below shows projected demand growth for the next five years.
and medium-term development plans. Load forecasts are presented and these, along
with the security criteria, culminate in the capital works programme for development.                                Zone Substation Maximum Demand Growth
Powerco has a range of development plans for different categories of equipment and                           5.0%

customer bases.                                                                                              4.0%

Network security of supply is a measure of the resilience of the network to                                  3.0%

                                                                                         Percentage Growth
operational changes, such as planned outages (e.g. those required for maintenance),                          2.0%
and unforeseen events (e.g. forced outages, such as those caused by equipment
                                                                                                             1.0%
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,                       0.0%
somewhat akin to a network balance sheet.                                                                    -1.0%

Powerco’s security of supply criteria have been set taking into account the                                  -2.0%
Electricity Engineers’ Association’s Security of Supply Guidelines and the report,                                   2005      2006   2007    2008       2009    2010 F   2011 F   2012 F   2013 F   2013 F   2015 F

entitled “Interaction between Transmission and Distribution System Planning”                                                Powerco    Powerco Prudent          Powerco Probable

from the CIGRE/CIRED Working Group, as well as the findings of the customer                                             Eastern        Eastern Prudent          Eastern Probable
                                                                                                                        Western        Western Prudent          Western Probable                               Year
communications process.
Load forecasting for the purposes of the asset management process is based on            Figure 14: Powerco Aggregate Maximum Demand Growth

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 FY2011 – 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 FY2021 is shown in the diagram below.

     •   Protection and control developments, including SCADA, load control and
                                                                                                                                 Total Network Capex
         metering;
                                                                                                                           160                                                                                                                                                    2.00
     •   Environmental performance and improvement;
                                                                                                                           140                                                                                                                                                    1.75
     •   Safety performance enhancement; and

                                                                                                Nominal Expenditure ($m)
                                                                                                                           120                                                                                                                                                    1.50

     •   Smart network implementation.

                                                                                                                                                                                                                                                                                         Inflation Index
                                                                                                                           100                                                                                                                                                    1.25

                                                                                                                            80                                                                                                                                                    1.00
     The network enhancement processes are driven by several of the “big picture”
                                                                                                                                                                                                                                                                                  0.75
     strategic themes of renewal and modernisation, automation, safety management and                                       60

     “smartening” the network.                                                                                              40                                                                                                                                                    0.50

                                                                                                                            20                                                                                                                                                    0.25
     The major network enhancement projects Powerco wishes to undertake are
                                                                                                                             0                                                                                                                                                    0
     described in the maps that follow in this summary AMP. All network enhancement

                                                                                                                                                             2009 A

                                                                                                                                                                      2010 A

                                                                                                                                                                                                          2014 F

                                                                                                                                                                                                                   2015 F

                                                                                                                                                                                                                            2016 F

                                                                                                                                                                                                                                     2017 F

                                                                                                                                                                                                                                              2018 F

                                                                                                                                                                                                                                                       2019 F

                                                                                                                                                                                                                                                                2020 F

                                                                                                                                                                                                                                                                         2021 F
                                                                                                                                  2006 A

                                                                                                                                           2007 A

                                                                                                                                                                               2011 B

                                                                                                                                                                                        2012 F

                                                                                                                                                                                                 2013 F
                                                                                                                                                    2008 A
     projects will also go through the multi-stakeholder assessment process.
                                                                                                                                           Routine & Preventive Maintenance                                  Inflation Index                             Financial Year

                                                                                             Figure 15: 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 FY2011 – FY2021
OPERATIONAL EXPENDITURES
Operational expenditures are those expenditures directly associated with running         The operational expenditure forecasts are denominated in nominal dollar values in
the electricity distribution network that cannot be capitalised. These include           line with the disclosure requirements. The inflation index is also shown in the graph.
maintenance expenditures required to operate or maintain the assets to achieve their
original design economic lives and service potentials. Powerco’s maintenance work                                           Total Direct Operational Expenditure
comprises the following:                                                                                               50                                                                                                                                                    2.00

•   Routine condition-monitoring;                                                                                                                                                                                                                                            1.75
                                                                                                                       40

                                                                                            Nominal Expenditure ($m)
                                                                                                                                                                                                                                                                             1.50
•   Routine servicing;

                                                                                                                                                                                                                                                                                    Inflation Index
                                                                                                                       30                                                                                                                                                    1.25
•   Evaluation of inspection and condition-monitoring results to determine any
                                                                                                                                                                                                                                                                             1.00
    maintenance requirements;
                                                                                                                       20                                                                                                                                                    0.75
•   Evaluating faults to predict condition-monitoring and maintenance requirements;
                                                                                                                                                                                                                                                                             0.50
                                                                                                                       10
•   Performing maintenance overhauls;                                                                                                                                                                                                                                        0.25
•   Rotable asset relocation;                                                                                          0                                                                                                                                                     0

                                                                                                                                                        2009 A

                                                                                                                                                                 2010 A

                                                                                                                                                                          2011 B

                                                                                                                                                                                   2012 F

                                                                                                                                                                                            2013 F

                                                                                                                                                                                                     2014 F

                                                                                                                                                                                                              2015 F

                                                                                                                                                                                                                       2016 F

                                                                                                                                                                                                                                2017 F

                                                                                                                                                                                                                                         2018 F

                                                                                                                                                                                                                                                  2019 F

                                                                                                                                                                                                                                                           2020 F

                                                                                                                                                                                                                                                                    2021 F
                                                                                                                             2006 A

                                                                                                                                      2007 A

                                                                                                                                               2008 A
•   Fault repair; and
•   Network operations.                                                                                                               Routine & Preventive Maintenance                                  Inflation Index                             Financial Year

The operating and maintenance expenditures also include direct management                Figure 16: Total Direct Operational Expenditure
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 expenditures to FY2021 are shown in
Figure 16 (blue-coloured bars) along with the actual (A) capital expenditures from the
FY2006 to FY2010 periods (purple bars) and the budgeted capital expenditure for
FY2011 (green bar).

                                                                                                                                      SUMMARY ASSET MANAGEMENT PLAN ELECTRICITY NETWORKS FY2011 – FY2021                                                                                              21
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