Planned Outages

INTRODUCTION Powerco is your electricity distributor. We provide the local networks that deliver electricity from the national grid to your home or business. Our networks serve your community and are vital to the economy of your region. Made up of assets worth approximately $1.5 billion, they are major infrastructure.

It is Powerco’s job to keep the lights on with a steady flow of electricity. We do everything we can to prevent power cuts, but sometimes they are unavoidable. When a power cut does happen, we are responsible for getting the power back on. We also renew our networks as they age and expand them as communities grow. All of this requires Powerco to plan well in advance. The service Powerco provides requires high-cost, long-term investments while our prices are controlled by government regulation. The quality of supply you receive is directly related to how much we are able to invest in the networks and how efficiently we operate them. The amount we can invest is related to how much we charge customers. For every dollar the average customer on Powerco’s networks spends on electricity, approximately 29 cents goes to Powerco. We know that many of our customers feel strongly about keeping the cost of electricity down. Therefore, your feedback is essential to help us understand if changes to network quality and, consequently, expenditure are required.

FLASHY? NO. CONTENTS IMPORTANT? YES. Considering Powerco provides an essential service – a lifeline utility – we think it’s a bit odd that so many people know so little about us. Because we don’t actually sell electricity, we’re not competing with INTRODUCTION...... 3 OUR FUTURE CHALLENGES other companies. As such, you won’t see us spending lots of money A widening gap...... 30 advertising on television. BACKGROUND INFORMATION Pressure on an ageing network...... 32 New Zealand’s electricty industry...... 6 We’re happy to work away in the background, doing our job quietly and efficiently. But it is important that we communicate A little more about Powerco...... 8 EXPENDITURE FORECASTS effectively with our customers and stakeholders. It is equally Capital expenditure...... 36 Competition and regulation...... 10 important that you give us feedback from time to time. Price/quality trade-offs...... 12 Operating expenditure...... 37 For people to provide feedback, they need to understand who we How does Powerco know what are and what we do. We have produced this document to keep 14 LEARN MORE AND KEEP IN TOUCH...... 38 its customers want?...... you informed and to explain some important issues. How well does Powerco perform?...... 16 Powerco’s priority is to provide safe and reliable electricity networks NETWORK PERFORMANCE at the most efficient cost. Because we supply infrastructure that is shared by many different customers, we must consider a wide variety What impacts our ability to deliver?...... 20 of different viewpoints. That provides us with many challenges, but Planned outages...... 22 we like challenges. How we are measured...... 24 Please take the time to read this report and provide us with your How we’re performing – the numbers...... 25 feedback on any topic. That will help us rise to the challenge and Our performance by region...... 26 provide electricity networks and services that match your expectations.

2 3 BACKGROUND INFORMATION This section explains the structure of the electricity industry, Powerco’s role and how we are regulated. It will also help you understand the issues impacting on Powerco.

4 5 NEW ZEALAND’S ELECTRICITY INDUSTRY

TRANSMISSION (national grid)

GENERATION DISTRIBUTION

RETAIL

Sectors of the electricity industry.

It takes considerable resources to create Customers or consumers? and deliver electricity to the entire country. GENERATION DISTRIBUTION In the past, this was the responsibility of Under the current industry structure, Powerco central government and regional energy As the name suggests, generators are the companies that generate electricity in power stations. At the GXPs, electricity is transformed to lower voltages then distributed to end-users via overhead is responsible for delivering electricity to you, boards. Since the 1980s and 90s, a series The electricity they generate is sold on to the wholesale market. In physical terms, the electricity lines and underground cables by local distribution (lines) companies like Powerco. There are an electricity consumer. But you, as a customer, of government reforms have dramatically is fed from power stations into the national grid. Numerous generation sites around the country currently 29 distribution companies, which operate within set boundaries and range from large no longer have a direct contractual relationship changed the structure of the industry. Today supply electricity to the national grid. More than half of New Zealand’s electricity is generated publicly listed companies to small community-owned trusts. with us. it is made up of distinct sectors with a diverse from hydro-electric stations. The remainder comes from a range of sources, including thermal Technically, Powerco’s customers are the range of companies participating. The aim (gas or coal), geothermal, and an increasing number of wind farms. The vast majority of New energy retail companies. Regardless, we of these on-going reforms has been to create Zealand’s electricity is generated by five large companies. consider all consumers connected to our a more commercially efficient industry with networks to be our customers. This ensures greater competition. we take direct responsibility for understanding and meeting your needs. Therefore, the TRANSMISSION (national grid) RETAIL words “customer” and “consumer” are This is the country’s backbone network of very high voltage lines and associated equipment. Retailers buy electricity from the wholesale market and on-sell it to consumers. They are also interchangeable throughout this document. State-owned enterprise Transpower owns and operates the national grid, which comprises responsible for the installation of meters and meter-reading. Retailers bundle up the costs from pylons, high-voltage cables and switchgear for transmitting bulk electricity from generation sites the other sectors, along with their own costs and provide you with a monthly bill. They set to distributors. Transpower transmits electricity from generating stations to more than 170 Grid the final price you pay and are responsible for customer service. The five large generation Exit Points (GXPs) around New Zealand. These GXPs are the points of supply for distribution companies all participate in the retail sector. networks like Powerco’s.

6 7 A LITTLE MORE ABOUT POWERCO

KEY

Powerco electricity networks

A network like no other No other distribution company in New Zealand covers such a large and diverse geographical area. Our networks are extensive. They supply a mix of urban, rural and remote areas. Most of Powerco’s rural operational area can be served only by overhead distribution lines. Much of the terrain they traverse is rugged and remote. It is more expensive to operate in these areas. Of all the distribution companies in New Zealand, Powerco has the second- highest percentage of overhead lines in rugged terrain. AUCKLAND Many of these lines were first installed in the 1950s and 1960s and are approaching the end of their service life. Large-scale renewal of our overhead networks in the coming years will provide significant challenges for Powerco and our customers. It is something to which we are currently paying special attention. Challenges aside, it is our job to manage and deliver a high-quality, reliable supply of electricity. Our focus is to ensure our networks are TAURANGA operated safely and reliably through prudent, effective and efficient Our people run the networks in real time to deliver electricity investments, maintenance and management. reliably and safely, 24 hours a day, every day of the year.

NEW PLYMOUTH

NAPIER Powerco’s asset fleet 30 Our networks are made up of many different pieces of 27% HASTINGS 25 WHANGANUI equipment, which we refer to as assets. The following graph 24% shows the make-up of Powerco’s 20 asset fleet. PALMERSTON NORTH As demonstrated by this graph, 17.5% 15 overhead distribution and low-voltage lines form a large part of our networks. Cables 10 refer to the underground 10% networks, typically found 8.5%

Percentage of regulated asset base value 7% 4% in urban and CBD areas. 5 2% WELLINGTON

0 Distribution Distribution Distribution Zone Other network Distribution Subtransmission Subtransmission and low-voltage and low-voltage substations and substations assets switchgear lines cables lines cables transformers

8 9 COMPETITION AND REGULATION

The electricity industry was deregulated in the late 1990s, with the THE IMPACT OF REGULATION ON PRICES introduction of the Electricity Industry Reform Act, 1998. The move saw Regulation has been effective in keeping Powerco’s and Transpower’s electricity distribution and retail businesses becoming separate entities, prices in check. with Powerco concentrating on distribution. In 1999, more than half of an average retail electricity bill went towards Electricity networks are expensive and it is uneconomic and impractical the national grid and Powerco’s distribution networks. Today, a little over to have multiple networks competing against each other. As such, a one third of the average bill goes towards those same networks. model allowing for a national grid, as well as one distribution company operating in any one area, has been used. However, regulation hasn’t been so effective in constraining the overall rise in electricity prices. We all know the price of electricity has risen This means Powerco is a natural monopoly. Unlike the generation and steeply in recent years. So where do the costs lie? retail sectors, we have no real competition for the services we provide. Your electricity bill is made up of costs for many different services. This is where government regulation makes sure your interests are Energy charges make up 62% of the average electricity bill. These are protected by: the combined charges from energy generation (producing electricity) and • Ensuring we keep our prices in check and can’t take advantage retail (purchasing and selling electricity, metering and customer service). of our monopoly status Distribution – or Powerco’s portion of your bill – equates to 29%, while • Setting targets for the frequency and duration of power cuts to transmission (9%) refers to Transpower’s portion for the national grid. ensure we continue to reinvest in our networks GST is included for each sector. • Making sure we consult with consumers Distribution and transmission are combined to form the line charge on your electricity bill. While line charges since 1999 have been stable, energy charges have steadily increased.

Composition of an average electricity bill 2014 Average electricity bill price trend Proportional change of average electricity bill Average electricity bill price trend graph The first graph to the right, shows the trend in the price of 35 35 OVERALL electricity since deregulation in real, or inflation-adjusted, PRICE UP 29¢ 9¢ 23% DISTRIBUTION TRANSMISSION terms. The top line is the overall retail price that the average 30 30 consumer on Powerco’s networks has paid for electricity. It (POWERC0) 18.34c/kwh is the sum of the “Line” (transmission plus distribution) and 25 25 “Energy” (generation plus retail) lines. ENERGY UP 10.39c/kwh 20 43% 20 Energy proportion INCREASE Proportional change of average electricity bill from 46% to 62% 15 15 The second graph to the right, shows the proportional Price cents per kWh Price cents per kWh change in the components of a retail electricity bill over 10 12.15c/kwh 10 11.01c/kwh the same period. LINE DOWN 11% Line proportion DECREASE 5 5 from 54% to 38%

0 0 15 August 1999 15 February 2014

62¢ 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ENERGY Energy Line Source:MoBIE Electricity Price Comparison for Domestic Consumers Feb 2014. Calculations Overall price (Energy + Line) Energy (Generation + Retail) are based on an 8000kWh low-use residential consumer on Powerco’s networks. Line (Distribution + Transmission) 10 11 PRICE/QUALITY TRADE-OFFS

WHAT IS A PRICE/QUALITY TRADE-OFF? Also, just like vehicle owners have legal requirements to meet safety standards, so to do network owners. We must build and operate In very simple terms, price/quality trade-offs are a case of “you get what our networks in a way that keeps everyone safe from harm. When you pay for”. For example, it may be possible to buy a car for $300, but considering price/quality trade-offs for our networks, ensuring the it is likely to be of a very poor quality. It may not be safe to drive – if it is safety of our staff and the public is non-negotiable. driveable at all. On the other hand, if you spent $300,000, you would get a top-of-the-line sports car. At that price, you are purchasing a vehicle A TRICKY BALANCING ACT that will give you years of high-performance motoring. At Powerco, we work hard to find the right balance between the Price/quality trade-offs do not just apply to cars – they also apply to price and quality of electricity supply for the majority of our customers. electricity networks. In theory, Powerco could build the network equivalent We believe we generally strike a good balance between the two. of a dream sports car that is designed to remove the risk of breakdowns altogether. However, to do so would require us to spend far more than In the past, Powerco has done a good job of maintaining acceptable we currently do. And that would mean higher electricity prices. levels of quality while our prices have been constrained. But there is no escaping the fact that our assets are ageing and there will need to be Because of the large costs involved, it is simply not practical to widespread replacement in the coming years. Left unchecked, these build such high-performance networks that never fail. Therefore, the ageing assets will begin to fail and the quality of our electricity supply occasional power cut will always be a fact of life. Most customers will inevitably drop. we’ve spoken to accept this and do not expect the network equivalent of an expensive sports car. But they definitely want something better Our current prices enable us to maintain what we have, but do not than the network equivalent of the $300 car. allow for future widespread asset replacement. Therefore, we need to start thinking about increasing investment in our networks to ensure we Like a safe and dependable family car, our networks are generally maintain our current levels of quality supply into the future. very reliable and do the job for which they are intended. However, they will break down from time to time. And, like a car, they will need more money spent on them as they age, to keep them up to standard.

This diagram demonstrates the concept of a price/quality trade-off. We need your feedback to help us achieve the right balance.

$ $$ $$$ $$$$ $$$$$ SMALL MEDIUM LARGE INVESTMENT INVESTMENT INVESTMENT

12 13 HOW DOES POWERCO KNOW WHAT ITS CUSTOMERS WANT?

Because we no longer have a direct contractual relationship with our WHAT HAVE OUR CUSTOMERS TOLD US? customers, communicating can be difficult. So we go to great lengths to Our customers understandably have high expectations. They often engage with our customers and to understand their views. That doesn’t wish to see lower prices and, at the same time, improved quality. mean we can always grant the wishes of every single customer. But it does give us a good understanding of what customers want, what we’re When we receive feedback of this nature, it provides us with the doing well and where we can improve. opportunity to inform our customers about the concept of price/quality trade-offs. However, trade-offs on the distribution networks can still be Dedicated staff difficult for customers to accept. This is because the majority of a retail We have a team dedicated to maintaining relationships with your electricity bill is made up of components outside Powerco’s control. retailer. This relationship is essential because retailers provide the main That means the overall cost of electricity impacts on customers’ views connection with customers. Included in this team are Key Account on distribution price/quality trade-offs. Managers who liaise directly with our large industrial customers. Thankfully, our surveys indicate that the quality of our service is meeting Agricultural field days, expos and trade shows the expectations of the vast majority of our customers. Occasionally, the performance of our networks in certain areas is seen as unacceptable by Each year we have stands at the Mystery Creek and Central Districts some customers. In these cases, our relationships with key stakeholders agricultural field days. We also attend various expos and trade shows and customer-representative groups are important. These relationships across our operational area. Attending these events provides customers and our willingness to engage directly with our customers help us target with an opportunity to have face-to-face discussions with Powerco staff. work programmes to make noticeable improvements. This allows for a highly constructive exchange of information. Most customers expect the occasional power cut and it is how Powerco Surveys reacts to them that is important. Good customer service and reliable, We also survey customers face-to-face, online and by post about the effective information flow between Powerco, retailers and customers quality and price of their electricity supply. We currently survey between is a priority. 4000 and 4500 customers each year. Something that has also come through strongly in feedback is that Stakeholder meetings and focus groups most customers do not want to see deterioration in network quality. We meet regularly with key stakeholders and customer-representative As we outline in this report, the potential for future deterioration of groups. These include Federated Farmers, Chambers of Commerce, quality is something that Powerco is particularly concerned about. local territorial authorities and other interest groups. We also conduct This is something we will need to discuss further with our customers. focus groups, which provide us with a wealth of qualitative data for different customer demographics.

Website and call centre Our website – www.powerco.co.nz – and our call centre – 0800 POWERCO (0800 769 3726) – provide customers with the means to contact us and provide feedback.

Consultation documents We produce documents, like this publication, to keep stakeholders and customer representatives informed and to generate dialogue.

Community-wide consultation campaigns When opportunities present themselves, we run community-wide consultation campaigns. Their purpose is to seek feedback on specific major projects or for region-wide, medium- and long-term network development plans. Campaigns involve a mixture of the above engagement methods, in addition to media advertising and information kiosks.

14 15 HOW WELL DOES POWERCO PERFORM?

Price We deliver what we say we will As mentioned previously, Powerco faces the challenge of supplying Powerco is also one of the best distributors at meeting expenditure some of the most rugged terrain in New Zealand. Regardless, our and planning targets. We delivered 100% of our works programme average price in 2013 (7.35 c/kWh) was 5% below the industry in 2013 and were within 3% of our expenditure budget. average.

Efficiency Powerco achieves costs that are lower than the industry average by delivering a high level of efficiency. We have one of the lowest operating costs in the industry. For example, our operating expenditure per km of circuit is 35% below the industry average. Our operating expenditure per consumer is 38% below the industry average. This is reflected across a range of expenditure categories. To further keep costs down, Powerco also makes sure it builds or replaces assets only when needed. This is reflected in how many assets we require for each consumer. This is known as asset efficiency, which is 24% better than the industry average.

Source for all graphs: electricity distributors’ information disclosure 2013.

Cents/kWh energy delivered to consumers Line revenue (inclusive of pass through costs) dollars/ Total operating expenditure/installation control point Asset efficiency (regulated asset base/ installation control point installation control points)

14 2,500 800 14

12 700 12 2,000 600 10 10

500 1,500 8 8 $ $ 400 $000 c/kWh 6 6 1,000 300

4 4 200 500 2 100 2

0 0 0 0 Powerco Powerco Powerco Powerco

Other distributors Powerco Average Other distributors Powerco Average Other distributors Powerco Average Other distributors Powerco Average

16 17 NETWORK PERFORMANCE This section explains how network quality is measured and provides you with a snapshot of how our networks have been performing.

18 19 WHAT IMPACTS OUR ABILITY TO DELIVER?

At the highest level, there are two types of outages – planned and unplanned. Planned outages are necessary to maintain lines. Unplanned outages can happen for a number of reasons. Many unplanned outages are caused by factors outside our control, such as extreme weather or vehicles hitting power poles. Trees interfering with overhead lines are also a major cause of unplanned outages. It is likely that intermittent tree contacts during high winds are also responsible for a large proportion of interruptions for which the cause has been classified as unknown. Windblown trees clashing with lines can sometimes cause supply interruptions without leaving permanent damage. Most of Powerco’s networks are located on land that is rural, rugged or remote. These areas are mostly served by overhead lines. Many unplanned outages that are outside Powerco’s control occur on overhead lines. The underground networks are less subject to supply interruptions.

Staying switched on Our modern society is incredibly reliant on electricity so we understand how frustrating power outages can be. While we can never guarantee uninterrupted supply 100% of the time, we are always looking at ways to improve. We are constantly measuring our performance and analysing data. This allows us to target work programmes that reduce the risk of unplanned outages occurring. It also helps us to respond quickly when Remote lines are more difficult and unplanned outages occur, and keep disruption to a minimum. expensive to maintain.

Interruptions per 100kms by cause

The graph to the right 80 shows the causes of outages for the year 70 to 31 March 2014.

No. of interruptions per 100kms 20

0 Planned Failed Unknown Tree Foreign Adverse Lightning Human Adverse outages equipment contacts interference weather element environment

20 PLANNED OUTAGES

A LITTLE BIT OF PAIN FOR LONG-TERM GAIN Powerco’s regulated network performance targets currently give equal weighting to planned and unplanned outages. We recognise that any interruption to supply can be frustrating. This can be the case even with planned outages when customers have been given advance notification. But the work we do on the networks during planned outages significantly reduces the risk of potentially more disruptive unplanned outages. We believe that less weight should be given to planned outages within help us our regulated network performance targets. This would allow us to undertake more vital planned works than we can fit within our current limits. This is an issue of critical importance to Powerco because of the help yOu need for increased renewal of our overhead networks in the near future. WIN free pOWer fOr a year* This work often requires planned shutdowns.

When considering any changes to regulated quality targets, the views What’s the catch? No catch. of our customers are of utmost importance. So, over the year ending We simply want your feedback about an important topic – planned power cuts. 31 March 2014, we went about finding out what our customers think You will need to watch a short video explaining why we have them and the process for planning them. You will then need to complete a quick survey. This will only take about 10 minutes of your of planned outages. This involved the following activities. time. To say thanks, we’re giving you the chance to win free power for a year*.

Why? • Surveys at the Central Districts and Mystery Creek agricultural Powerco is responsible for the network that delivers your electricity. We don’t sell electricity or set the final price you pay for it– your retailer does that. Because you mainly deal with your energy field days retailer, we don’t have much contact with you. That makes it hard for us to understand your expectations, what’s important to you and how we can improve our service. We need • A series of focus groups with a range of different customer types to understand these things – after all, we provide you with an essential service. • An online video explaining planned outages and an accompanying hoW? Visit www.powerco.co.nz and click on the Planned Power Cuts survey. Powerco’s electricity networks are in the Western Bay survey Watch the video and complete the survey before 1 April 2014 and your name will go in the draw of Plenty, Thames, Coromandel, to win free power for a year*. eastern and southern Waikato, Taranaki, Whanganui, Rangitikei, Want to keep updated? Like us on Facebook. Manawatu and the Wairarapa. More than 2600 of our customers responded to our surveys. areN’t all poWer cuts the same? No. Respondents overwhelmingly told us that planned outages are Some power cuts are caused by things outside Powerco’s control such as storms and vehicles hitting poles. However, we sometimes need to shut your power off to perform maintenance or repairs. preferable to unplanned. The vast majority also said they would These are called planned power cuts and you receive advance notification about them from your energy retailer. Of course, the end result is the same as an unexpected power cut. But your prefer an increase in planned outages if they reduced the risk of feedback about things like notification and timing of planned power cuts helps make the process unplanned ones. However, this acceptance of an increase was run more smoothly.

*The prize winner will have $3,000 credited to their retail energy account (based on 25% more largely conditional on Powerco and energy retailers meeting a range than the average residential electricity bill of $2,400 a year). See website for terms and conditions. Powerco Limited © 2014. All rights reserved. of conditions. Conditional acceptance mainly related to effective notification and communication prior to, during and after any planned One of our advertisements asking for feedback. outages. Feedback was generally consistent across all of the surveys and focus groups. This year the Commerce Commission will reset Powerco’s quality targets for 2015-2020. As part of this reset, they will consider the weighting of the planned component of Powerco’s SAIDI and SAIFI targets.

22 23 HOW WE ARE HOW WE’RE MEASURED PERFORMING – THE NUMBERS

There are two internationally accepted measurements of network Extreme events impact on the SAIDI and SAIFI results for any given Each time there is a power cut on our high-voltage networks we start There are several options available to manage SAIDI and SAIFI performance. These are known by the acronyms SAIDI and SAIFI. year. For example, in the year to 31 March 2013, we were fortunate counting customers and minutes. Our Network Operations Centre is in performance in the short term. These include: Powerco has targets for SAIDI and SAIFI that are determined under that no extreme events affected our networks. This allowed us to constant contact with fault crews in the field, working to restore supply • Changing the amount of planned work undertaken rules set by the Commerce Commission. undertake more planned works over that year. The result of this was as quickly as possible. We record all the information about what • Increased tree trimming in targeted areas an increase in Powerco’s planned SAIDI minutes, while still remaining caused the power cut, how many customers were affected and how • Mobilisation of field crews prior to a storm and concentration SAIDI, or System Average Interruption Duration Index, measures within our overall limit. However, severe weather events were a feature long it took to restore supply. of the year to 31 March 2014. These events, combined with an of resources after a storm the average number of minutes per year that a consumer is without The graphs below illustrate how Powerco’s electricity networks have increase in other unplanned outages, meant Powerco was close to its • Supplying stand-in generation so that customers are not affected electricity. performed in recent years. They show the overall network performance regulated SAIDI target. This meant we had to scale back our planned by a planned outage and the impact of extreme events. When extreme events meet certain SAIFI, or System Average Interruption Frequency Index, measures works to stay within our target. the average number of times per year that a consumer is without criteria they are classified as major event days. The impact of these The graphs show that headline network performance is reasonably electricity. events is shown in red. Major event days are removed when calculating stable as Powerco manages SAIDI and SAIFI results to meet the limits Powerco’s total SAIDI and SAIFI to show the underlying network set under the Commerce Commission’s rules. However, the above are performance. The horizontal “threshold” lines show our regulated targets. tools for managing our SAIDI and SAIFI performance in the short term Extreme events can impact on the number of times a consumer is without only. They do not address long-term issues that, if left unchecked, will electricity, or the average duration of interruptions. On Powerco’s lead to deterioration in quality. Our analysis shows that large parts networks, most extreme events are due to severe storms. Extreme of our overhead networks are nearing the end of useful life and are weather events have been occurring regularly in recent years, with categorised as having overall lower levels of health. Correspondingly, devastating impacts. an increase in maintenance and renewal expenditure will be required It is important to differentiate between rough weather conditions and in targeted areas across our networks. Powerco is working hard an extreme weather event. If equipment is aged and nearing the end to ensure that this forecast expenditure is justified and is targeted of its service life, it is more likely to fail in high winds. Trees growing appropriately to prevent quality from deteriorating in the long term. close to lines are also more likely to cause problems. Extreme weather events, however, can be powerful enough to damage brand new parts of our networks. Problems can be caused through the sheer force of the wind alone. Heavy snowstorms can also be classified as extreme weather events.

Graph showing SAIDI results since 2009 Graph showing SAIFI results since 2009

SAIDI SAIFI

350 3.0

300 2.5

250 2.0 200 1.5 150 SAIFI SAIDI minutes 1.0 SAIDI SAIFI 100 50 0.5 SYSTEM AVERAGE SYSTEM AVERAGE INTERRUPTION INTERRUPTION 0 0 DURATION INDEX FREQUENCY INDEX 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 measures the average measures the average Year ending 31 March Year ending 31 March number of minutes per number of times per SAIDI planned Total SAIDI SAIFI planned Total SAIFI year that a consumer year that a consumer SAIDI unplanned SAIDI threshold SAIFI unplanned SAIFI threshold is without electricity. is without electricity. Major event days Major event days

24 25 OUR PERFORMANCE BY REGION

Powerco’s electricity networks cover a range of diverse terrain in Supply interruptions may also be caused by outside influences. different regions, each with unique challenges. This can result in a For example, interruptions on Transpower’s national grid may have a different experience for customers in each of our regions. major impact on the number and duration of interruptions experienced. These interruptions are included as part of the “other”’ group. Customer The graphs below illustrate SAIDI and SAIFI for Powerco’s regional requests for outages are also included in this group. electricity networks. The districts of Thames-Coromandel, Hauraki, Matamata Piako and South Waikato are known collectively as “Valley”. The SAIDI and SAIFI results in these graphs do not include extreme events.

VALLEY SAIDI VALLEY SAIFI WHANGANUI SAIDI WHANGANUI SAIFI

500 4.0 500 4.0 3.5 3.5 400 400 3.0 3.0 300 2.5 300 2.5 2.0 2.0 SAIFI SAIFI 200 1.5 200 1.5 SAIDI minutes 1.0 SAIDI minutes 1.0 100 100 0.5 0.5 0 0.0 0 0.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Year ending 31 March Year ending 31 March Year ending 31 March Year ending 31 March

Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other

TAURANGA SAIDI TAURANGA SAIFI MANAWATU SAIDI MANAWATU SAIFI

500 4.0 500 4.0 3.5 3.5 400 400 3.0 3.0 300 2.5 300 2.5 2.0 2.0 SAIFI SAIFI 200 1.5 200 1.5 SAIDI minutes SAIDI minutes 1.0 1.0 100 100 0.5 0.5 0 0.0 0 0.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Year ending 31 March Year ending 31 March Year ending 31 March Year ending 31 March

Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other

TARANAKI SAIDI TARANAKI SAIFI WAIRARAPA SAIDI WAIRARAPA SAIFI

Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other Powerco unplanned Powerco planned Other

26 27 OUR FUTURE CHALLENGES We face several challenges in managing our networks in the coming years.

28 29 A WIDENING GAP

Powerco has performed strongly in delivering stable prices to our customers. Over the past decade, we have significantly increased the amount of expenditure on our networks. This has been achieved while average prices have tracked at a rate less than inflation. This is illustrated in the graph below. However, we are concerned that the gap between the revenue allowed through regulation and the investment levels required to maintain current network performance is not sustainable in the long term. We know that consumers are frustrated by rising electricity prices. However, most of these increases have been caused by the rising costs of producing energy and transmission charges, rather than Powerco’s charges. These costs are outside Powerco’s control. The amount of revenue we are allowed to earn directly impacts on the level of investment in our networks. Subsequently, the level of investment we can undertake directly impacts on the quality of supply you receive. Regardless of other industry charges, we need to understand your preferences to get the balance right for the distribution networks.

Preparing to install a new zone transformer.

Powerco capital investment vs. distribution charges (real) 2005 – 2016

120,000 15

14 Powerco distribution charge (cents/kWh) real 100,000 13 12 80,000 11

Range of Powerco average price movement 10 60,000 9 8 40,000 7 6

Network Capex Investment ($000s) real 20,000 5 4 0 3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Network capex investment ($000s) real Distribution charge (c/kWh) real Network capex investment forecast ($000s) real Distribution charge forecast (c/kWh) real 30 31 PRESSURE ON AN AGEING NETWORK

Powerco is committed to providing a reliable electricity we understand price concerns supply to our 325,000-plus customers. We have a We recognise that affordability is an issue and that there are history of balancing communities’ growth and reliability widespread public concerns about the rising price of electricity. needs, while keeping prices in line with inflation. We will therefore consult widely on any need to increase investment, and take feedback into account. Along with consulting you, we will work with the Commerce Now it’s time to look to the future Commission on the best ways to secure a robust network for the future. We want to secure the reliability of your electricity supply in the As part of this, we would like your feedback on the regulatory process. long term. We know unplanned power cuts can be disruptive. That We encourage you to learn more about the electricity industry and is something we want to mitigate in the coming years by investing in Powerco’s role within it. That way you can actively contribute to the networks, which are getting older and becoming more vulnerable regulatory discussions and help shape the future of the industry. to failure. See page 38 of this report to learn how you can keep in touch and provide feedback. To ensure we continue with our current levels of service, analysis shows we need to lift maintenance and renewal expenditure in targeted areas across our networks. good planning is essential The decisions we make on long-term investment during the next few years As mentioned earlier in this report, we have recently undertaken will shape the capability and performance of our networks in the coming customer consultation on scheduling planned power cuts to carry out decades. We believe it is essential that our decisions are underpinned by essential network maintenance. Customers have told us they would be quality analysis and reflect the requirements and desires of our customers. willing to conditionally accept more planned outages if that meant they would experience fewer unplanned outages. While we undertake further analysis, our current expenditure projections allow for continued increases in asset investment. We are also considering how to best achieve long-term operational efficiencies and lift our asset management capability. This will require In the interim, Powerco will continue to rise to the challenges we have some up-front investment, but has long-term benefits for customers. outlined. We will continue to monitor network performance, refine We believe that investing in the assets we have will help curb the our investment strategies and refocus activities as needed to meet level of increased investment required long term. However, we may our quality targets. still need to lift investment by a magnitude that could see prices rise.

32 33 EXPENDITURE FORECASTS Our 2014 Asset Management Plan (AMP) update provides the latest information on our planned expenditure.

The graphs on the following pages, show the profile of capital expenditure (capex) and operating expenditure (opex) over time. The forecast expenditure over the planning period (FY15 to FY22) is shown. The basis of the expenditure profile can be summarised as follows.

• The investment profile for the four-year period FY14 to FY17 is aimed at meeting short-term network needs and allows for a build-up of expenditure (and delivery resources) to a steadier state level of expenditure from FY18 onwards.

• The investment profile for FY18 to FY24 reflects a step-change increased level of expenditure. It is to deliver a managed increase in renewals and maintenance work to address long-term network investment requirements and maintain current levels of network reliability. This expenditure path will need to be approved by the Commerce Commission, but Powerco would seek the views of both customers and end-consumers prior to making any expenditure commitments.

34 35 CAPITAL OPERATING EXPENDITURE EXPENDITURE

The following figure shows a breakdown of capital expenditure Network growth Network operating expenditure is made up of maintenance work Vegetation management (in real/constant terms) and excluding capital contributions on A review of future growth-related capital expenditure on an area-by- (routine maintenance/inspections, fault and emergency maintenance, Recent analysis and physical trials on our networks indicate that the following: area basis has confirmed the appropriate level of expenditure over the and refurbishment and renewal maintenance) and expenditure effective tree-trimming programmes (collectively termed vegetation associated with operating the system. • System growth period. This indicates a modest increase in investment for this category management) provide direct benefits for network reliability. We have of expenditure towards the latter part of the planning period to enable more work to do to design our cutting programmes to achieve maximum • Replacement and renewal We have forecast a modest increase in operating expenditure in the us to maintain targeted levels of security and reliability for our customers. short term (FY14 to FY17). This reflects an increased focus on managing benefit in a way that can be effectively resourced. Once this work • Reliability, safety and environment reliability outcomes by concentrating on defects management. During is complete, we anticipate lifting expenditure from around FY18 and Reliability and safety • Asset relocation this period we will be validating and refining the case for lifting introducing a rolling programme of cyclical tree-trimming across our • Non-network assets We have identified a number of reliability, safety and environmental operating expenditure across a number of areas. full footprint. enhancement projects that are required to support the delivery of our There are a number of specific areas where increased levels of asset management objectives. A key initiative will be to increase our From FY18 onwards, maintenance expenditure is forecast to increase Routine maintenance capital expenditure will be required to ensure we can meet our network automation, which will provide improved real-time oversight more sharply as we increase the rate of asset refurbishment, deploy Our analysis suggests that, by lifting the volume of routine maintenance asset management objectives, these are: of our networks. We are also planning other initiatives to improve additional fault-related resources as needed as our networks mature, interventions in some targeted areas, we will be able to enhance reliability, safety and network communications capability. and focus on planned vegetation management. Our intent in lifting the service lives of some assets and improve their overall levels of Asset renewal and replacement operational expenditure is to optimise our overall level of investment. performance. A more proactive approach to overhead distribution A review of the performance and age profile of our asset fleets We anticipate that the operational expenditures we are proposing will lines is a particular focus. has highlighted the need to lift renewal expenditure (particularly for enable us to manage the path of capex investment more effectively. overhead assets) from about midway through the planning period There are a number of specific areas where increased levels of (FY17/FY18) as an increasing number of our assets reach the end operating expenditure will be required to ensure we can meet our of their service lives. Key focus areas over the planning period include asset management objectives. These are: zone substation renewals and safety driven replacements on various asset classes. Our analysis is increasingly suggesting a significant Fault response proportion of overhead lines are reaching the end of their physical Recent analysis, including modelling of SAIDI outcomes, suggests that lives. These lines are being closely monitored, along with certain lifting expenditure in the fault-response area will provide a cost-effective subtransmission lines that don’t have backup lines. Asset renewal way of maintaining our reliability targets as our networks age. plans will be refined over the next two years to confirm the timing and volume of renewal work required.

Capex (net of customer contribution capex) Opex

A breakdown of forecast 160 A breakdown of forecast 100 capital expenditure operating expenditure (in real/constant 2014 (in real/constant 2014 90 terms) is shown in this 140 terms) is shown in this figure. figure. 80 120 70 100 60

80 50

40 60 Constant 2014 $ (m) Constant 2014 $ (m) Constant 2014 30 40 20 20 10

0 0 2014 B 2015 F 2016 F 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F 2023 F 2024 F 2014 B 2015 F 2016 F 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F 2023 F 2024 F

Consumer connection System growth Asset replacement and renewal Service interruptions and emergencies Vegetation management Assets relocation Quality of supply Other reliability, safety and environment Routine and corrective maintenance and inspection Asset replacement and renewal Non-network assets Cost of financing System operations and network support Business support 36 37 LEARN MORE AND KEEP IN TOUCH

Thank you for taking the time to read this document. Website We look forward to working together to ensure The challenges, objectives and expenditure forecasts mentioned in this that we meet your expectations. By doing so, we report are covered in more detail in Powerco’s Asset Management Plan. will achieve our vision of being a reliable partner Our 2014 AMP can be found on our website, along with a range of other helpful information. Visit www.powerco.co.nz to learn more. delivering New Zealand’s energy future. Working together, we will support your community’s wellbeing Email and future development through the provision of If you would like to email us your feedback, visit our website and click networks and services, at the right balance between “contact us”. Alternately, you can email us at [email protected]. price and quality. POSTAL We recognise that modern computer technology is not everyone’s cup of tea. We’re always happy to receive your feedback via the good, old-fashioned postal service. Please address any feedback to: Consultation Manager C/O Powerco Ltd Private Bag 2061 New Plymouth 4342

Face-to-face We think there are great benefits for Powerco and our customers when we get together in person. It never ceases to amaze us how easily problems can be solved, or misconceptions cleared up, through face-to-face contact. There are a number of ways you can talk to Powerco people face-to-face: • See the back cover of this report for our office locations in Tauranga, New Plymouth, Palmerston North and Wellington • Visit our stand at the Central Districts or Mystery Creek agricultural field days each year • Or give us a call on 0800 769 3726 to arrange a meeting.

A RELIABLE PARTNER DELIVERING NEW ZEALAND’S ENERGY FUTURE Powerco’s vision is to be a reliable partner delivering New Zealand’s energy future.

38 39 Corporate office POWERCO PALMERSTON NORTH Level 2 NPDC Civic Centre 84 Liardet Street 50 Mihaere Drive Private Bag 2061 PO Box 5024 New Plymouth 4342 Terrace End New Zealand Palmerston North 4441 New Zealand T: +64 6 759 6200 E: [email protected] T: 0800 769 372

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