Asset Management2016 Plan www.topenergy.co.nz INTRODUCTION Introduction It gives me great pleasure to present Top Energy’s FYE2017-26 Network Asset Management Plan (AMP). This 2016 AMP follows on from the 2014 AMP and 2015 AMP Update, addressing in particular the key issues of reliability and security of supply. In this AMP, we detail our reliability improvement programme as well as our significant transmission and subtransmission investment plan over the next decade. This AMP is the core asset management planning and operations document for Top Energy Networks and details planned inspection, maintenance and capital replacement strategies for the next ten years, as well as the service level targets that we are aiming to deliver to our consumers. In compiling this AMP, we have focused not only on ensuring compliance with the Commerce Commission’s Electricity Distribution Information Disclosure Determination 2012, but also on providing detailed information that accurately reflects what we need to invest in developing and maintaining the network and why this expenditure is necessary. In 2015, our Board approved a Strategy Map for the Top Energy Group, which sets out the Group’s mission, vision and values and which underpins everything that we do. Each operating division within the Group has developed its own strategic vision, which interprets the Group’s mission and vision in the context of the business unit’s core activity but, importantly, maintains the Group’s core values and high level corporate objectives. Our Network mission is to: provide a safe, secure, reliable and fairly priced supply of electricity to consumers in the Far North. Our vision is to: enable consumers to take greater control over their business and home energy supply needs by developing secure; two-way energy flow; and load information and management solutions. In developing this AMP for the period FYE2017-26 in accordance with our mission and vision, and mindful of our corporate values and objectives, we have addressed a number of strategic challenges. In particular: There is a strong community desire that we provide a higher level of supply security for the more than 10,000 consumers in the north of our supply area, who are dependent on a single 110kV transmission circuit that is in only average condition and that requires an annual maintenance outage that lasts for a whole day. The strategic issue we are facing is what to do about this situation, which the Trust considers unacceptable in a developed economy – during these maintenance outages EFTPOS machines won’t work and fuel cannot be purchased so, aside from the inconvenience, there is a real cost to business. The high cost of the planned second circuit means that it is technically uneconomic under the most likely growth scenarios and only marginally economic if a low probability, high load growth outcome is assumed. Partly for this reason, in early 2015 we decided to defer completion until FYE2026. However, the alternative of installing diesel generation is unlikely to be an effective or sustainable long term solution and allowing the present situation to continue indefinitely is not considered an option. While there has been a significant improvement in our reliability of supply over the last five years, it remains the worst in the country. This is due to our fringe location on the transmission grid, the lack of a dominant urban centre, an inadequate subtransmission infrastructure and the very high proportion of uneconomic medium voltage lines. Historically, funds that could have been invested in subtransmission development have been needed to fund essential maintenance of these uneconomic lines. This has left a legacy of underinvestment, to the extent that our subtransmission network is only now becoming able to provide the level of supply reliability accepted as the norm in the rest of the country. Recent changes in the Health and Safety in Employment legislation could also adversely impact the rate at which we are able to improve our reliability of supply, as it is possible that they could result in Worksafe New Zealand restricting the use of live line maintenance for safety reasons. The Electricity Engineers’ Association is working closely with Worksafe New Zealand on this issue and the outcome of these discussions is not clear at this stage. Restrictions on the use of live line maintenance would have an adverse impact on the reliability of supply to the Kaitaia region, as currently maintenance on the 110kV transmission line is undertaken live to the extent this is practical. Electricity volumes supplied to consumers peaked in 2012 following a period of relatively strong growth and have since declined from a peak of 333GWh to a current level of 321GWh in 2015. This decline is attributed to flat consumption by our large industrial consumers and energy efficiency initiatives implemented by other consumers. The flat industrial consumption is a function of the stagnant economic 1 INTRODUCTION climate in our supply area, while energy efficiencies are in part driven by a response to the price increases that we introduced to fund our network development programme and in part by the increased community awareness of the environmental impacts of excessive electricity consumption. These challenges, and their impact on our asset management planning, are discussed in detail in this AMP. Overall, the plan presented in this document reflects our current view on how we might best contribute to Top Energy’s corporate mission, given our forecast revenues and availability of debt funding under what we consider the most likely energy delivery scenario. The reliability forecasts presented in Schedule 12d, which is appended to this AMP, follow the Commission’s requirement to forecast the raw reliability data prior to any normalisation. However, in assessing our compliance with the quality threshold under its default price quality regulatory regime, the Commission normalises this raw data. This involves limiting the impact of interruptions that occur on “major event days” to a predetermined boundary value and reducing the weighting of planned interruptions to 50% of their actual SAIDI or SAIFI impact. The purpose of this normalisation is to reduce the impact of events such as major storms on the measure, and so produce a measure of reliability that better reflects the impact of factors that an electricity distribution business is able to control We use the Commission’s normalised measures to assess and report on our supply reliability for internal management purposes. However, our internal targets are more challenging than the benchmarks used by the Commission for quality assessment purposes, in order to ensure that reliability improvements resulting from our investment programme are properly captured. These internal targets have also been reset for this AMP to better reflect the performance we expect from the network in a year of average weather conditions, to capture the impact of recent changes to the Commission’s normalisation methodology and also to reflect changes on our approach to the management of planned interruptions. Our targets have been incrementally reduced over the planning period of this AMP to reflect the further reliability improvements that we expect from our continuing investment programme. This includes a slightly larger step improvement in FYE2019 to reflect the impact of the commissioning of the Kaeo substation the previous year. In addition to the service level targets used by the Commerce Commission, we set our own targets for improvement in the performance of our five worst performing feeders and worst affected consumers. The expenditure forecasts in this AMP provide for specific performance improvement plans to FYE2019 for the Pukenui 33kV feeder and the 11kV South Road, Rangiahua, Totara North and Whangaroa feeders. A more secure and reliable electricity supply has economic benefits for the region. It makes our supply area a more attractive place to do business. It will attract new investment, creating opportunities for employment and economic prosperity; we believe that’s good for everyone. Implementation of the plans described in this AMP will see us invest approximately $150 million on network capital expenditure and $50 million in network maintenance expenditure over the ten-year period of this AMP, based on current prices. The Board is confident that this expenditure will improve service outcomes to levels comparable to those experienced by consumers supplied by similar rural networks within New Zealand. Nevertheless, the Board recognises the potential pricing impact of expenditure on this scale and will therefore focus on achieving a price-quality balance that is affordable and in the best interests of the communities that we serve. In addition to the technical development of the network assets, we continue to develop the safety and asset management culture within Top Energy. We actively participate in the Electricity Engineers’ Association Safety Climate Project. This is a project requiring staff engagement, at all levels, on safety and has the added benefit of sharing the experiences of other participants from across the industry. To succeed, the Company and all staff must maintain a proactive role in training, competency, peer support and guidance, and monitoring industry issues. In 2015 we achieved certification of our asset management and operational processes to the quality standard ISO 9001. This was a key milestone in steadily improving our processes toward alignment with the Asset Management Standard ISO 55001. In this AMP we have updated the Asset Management Maturity Assessment Tool (AMMAT) using the latest Electricity Engineers’ Association AMMAT Guide, and through our continued improvement and quality systems put in place to achieve ISO 9001 certification it is pleasing to report an increased AMMAT score. We hope that you find this Asset Management Plan both informative and helpful. We welcome your feedback on the plan or any other aspect of Top Energy’s business and performance. Feedback can be provided through 2 INTRODUCTION the Top Energy website at http://www.topenergy.co.nz/contact-us-feedback.shtml or emailed to [email protected].