Asset Management Plan

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Asset Management

Plan 2014 – 2024

Clarks Substation in winter

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1. BACKGROUND AND OBJECTIVES ... 13

1.1 HISTORY OF THE NETWORK ... 13

1.2 PURPOSE OF THE ASSET MANAGEMENT PLAN ... 14

1.3 INTERACTION WITH OTHER GOALS AND DRIVERS ... 15

1.4 KEY PLANNING DOCUMENTS AND PROCESSES ... 16

1.5 INTERACTION OF GOALS AND STRATEGIES ... 19

1.6 PERIOD COVERED BY ASSET MANAGEMENT PLAN ... 19

1.7 STAKEHOLDER INTERESTS ... 20

1.8 ACCOUNTABILITIES FOR ASSET MANAGEMENT ... 26

1.9 SYSTEMS AND PROCESSES ... 27

2. DESCRIPTION OF NETWORK ... 28

2.1 SERVICE AREA... 28

2.2 SUMMARY OF NETWORK CONFIGURATION ... 35

3. PERFORMANCE BENCHMARKING ... 49 3.1 COSTS ... 49 3.2 RELIABILITY ... 54 3.3 TECHNICAL EFFICIENCY ... 58 3.4 ASSET BASE ... 60 4. RISK MANAGEMENT ... 63 4.1 RISK METHODS ... 63 4.2 RISK DETAILS ... 64 4.3 CONTINGENCY PLANS ... 69 4.4 INSURANCE ... 69

5. PERFORMANCE AND IMPROVEMENT ... 70

5.1 OUTCOMES AGAINST PLANS ... 70

5.2 PERFORMANCE AGAINST TARGETS ... 71

5.3 IMPROVEMENT AREAS AND STRATEGIES ... 79

6. PROPOSED SERVICE LEVELS ... 81

6.1 CUSTOMER-ORIENTED SERVICE LEVELS ... 82

6.2 SAFETY ... 85

6.3 OTHER SERVICE LEVELS ... 85

6.4 REGULATORY SERVICE LEVELS ... 86

7. DEVELOPMENT PLANS ... 88

7.1 PLANNING APPROACH AND CRITERIA ... 88

7.2 PRIORITISATION METHODOLOGY ... 93

7.3 OTAGONET‘S DEMAND FORECAST ... 98

7.4 OTAGONET NETWORK CONSTRAINTS ... 104

7.5 POLICIES FOR DISTRIBUTED GENERATION ... 105

7.6 USE OF NON-ASSET SOLUTIONS ... 106

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7.9 NON-NETWORK DEVELOPMENT ... 119

7.10 DEVELOPMENT STRATEGIES THAT PROMOTE ENERGY EFFICIENCY ... 120

8. MANAGING THE ASSETS’ LIFECYCLE ... 121

8.1 LIFECYCLE OF THE ASSETS ... 121

8.2 OPERATING OTAGONET‘S ASSETS ... 122

8.3 MAINTAINING OTAGONET‘S ASSETS ... 124

8.4 RENEWING OTAGONET‘S ASSETS ... 130

8.5 UP-SIZING OR EXTENDING OTAGONET‘S ASSETS ... 136

8.6 ENHANCING RELIABILITY... 137

8.7 CONVERTING OVERHEAD TO UNDERGROUND ... 137

8.8 RETIRING OF OTAGONET‘S ASSETS ... 138

8.9 NON-NETWORK, MAINTENANCE AND RENEWAL ... 138

8.10 LIFECYCLE STRATEGIES THAT PROMOTE ENERGY EFFICIENCY ... 138

8.11 LIFE CYCLE MAINTENANCE AND RENEWAL BUDGET ... 139

8.12 LIFE CYCLE BY ASSET CATEGORY ... 139

9. PROCESSES AND SYSTEMS ... 166

9.1 ASSET KNOWLEDGE ... 166

9.2 ASSET MANAGEMENT TOOLS ... 167

9.3 IMPROVING THE QUALITY OF THE DATA AND PROCESSES ... 168

9.4 USE OF THE DATA ... 168

9.5 DECISION MAKING ... 169

9.6 KEY PROCESSES AND SYSTEMS ... 170

10. RESOURCING THE BUSINESS ... 172

10.1 FUTURE RESOURCING REQUIREMENTS ... 172

A. APPENDIX – AMP DISCLOSURE REQUIREMENTS ... 173

B. APPENDIX - CUSTOMER ENGAGEMENT SURVEY ... 180

C. APPENDIX – ASSUMPTIONS ... 185

D. APPENDIX – EDIDD SCHEDULE 11A ... 186

E. APPENDIX – EDIDD SCHEDULE 11B ... 187

F. APPENDIX – EDIDD SCHEDULE 12A ... 188

G. APPENDIX – EDIDD SCHEDULE 12B ... 189

H. APPENDIX – EDIDD SCHEDULE 12C ... 190

I. APPENDIX – EDIDD SCHEDULE 12D ... 191

J. APPENDIX – EDIDD SCHEDULE 13... 192

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CONTENTS

Enquiries

Enquiries, submissions or comments about this Asset Management Plan (AMP) can be directed to: OtagoNet Limited PO Box 1586 Invercargill, 9840 Phone (03) 418 4950 Email amp@powernet.co.nz

Declaration

OtagoNet Joint Venture (OtagoNet) confirms that they have produced this AMP in accordance with the requirements of the Commerce Commission and any other legislative requirements.

Liability disclaimer

The information and statements made in this AMP are prepared on assumptions, projections and forecasts made by OtagoNet JV (OtagoNet) and represent the company‘s intentions and opinions at the date of issue (31 March 2014). Circumstances may change, assumptions and forecasts may prove to be wrong, events may occur that were not predicted, and OtagoNet may, at a later date, decide to take different actions to those that it currently intends to take. OtagoNet may also change any information in this document at any time.

OtagoNet accepts no liability for any action, inaction or failure to act taken on the basis of this AMP.

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Summary of the plan

This section summarises the key points from this Asset Management Plan which signals a step increase in network expenditure driven off the need to recover the network condition and meet the network safety, security and reliability objectives. As discussed in this plan, the indicated increase in expenditure continues a trend of rising expenditure on the network following the transfer of ownership in 2003 and comes on the back of historically low and unsustainable levels of expenditure, all as depicted in Figure 1 below.

Figure 1 Historic and forecast expenditure

In the last financial year (FY2014), a number of assets found to be in poor condition prompted the commencement of a one-off full network inspection that will continue into FY2015. As the results of this accelerated surveillance are not complete and may point to further work not identified in this plan, the costs set out herein may change and a revision of this plan will be published.

0.1

Background and Objectives

The purpose of the AMP is to provide a governance and management framework that ensures that OtagoNet:

 Meets all safety requirements consistent with regulatory requirements and recognised industry practice

 Sets service levels for its electricity network that will meet customer, community and regulatory requirements.

 Meets the network capacity, reliability and security of supply requirements both now and in the future.

 Have robust and transparent processes in place for managing all phases of the network life cycle from commissioning to disposal.

 Properly considers the classes of risk OtagoNet‘s network business faces and that

there are systematic processes in place to mitigate identified risks.

 Makes adequate provision for funding all phases of the network lifecycle.

 Makes decisions within systematic and structured frameworks at each level within the business. $0k $2,000k $4,000k $6,000k $8,000k $10,000k $12,000k $14,000k $16,000k $18,000k Exp e n d itu re ($k )

Historic and forecast expenditure

(CPI adjusted) Total Capital Maint. Total Capital Maint.

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SUMMARY

 Obtains increased levels of information relative to the location, age and condition of the constituent components of the network.

 Implements systems to ensure that the information pertaining to the network assets is able to be readily utilised to facilitate network planning and efficiently determine prudent levels of capital and maintenance expenditure and maximise reliability of customer supply.

OtagoNet works to the below strategies at the corporate and asset level: Corporate Strategies

Delivery to the customers of an economic, safe, efficient and quality electricity supply and meets all legislative requirements.

Maintaining and enhancing the long term value of assets, business units, products and investments.

Deliver a reasonable commercial return on equity. Achieve a long term reliable electricity supply.

Asset Management Strategies

Sectionalising poorly performing feeders  

Continue to expand the meshed area of the network  

Manage deteriorating assets through condition inspection and replacement

   

Reduce planned SAIDI by employing mobile generation where feasible and economic

 

Employ strong capital governance processes    

Identifying and managing network health, safety and other risks     Direct investment towards reliability and the more economic sections of

the network

  

Achieve 100% regulatory compliance  

Ensure compliance with internal network standards  

This plan covers the period 1 April 2014 to 31 March 2024, and was approved by the OtagoNet Governing Committee on 31 March 2014.

However, it has to be stated that the provisions of this plan are based on information currently available and may well change as further information is obtained. The extensive surveillance of the network provided for in this plan for the year ending 31 March 2015, will enable the current provisions of this plan to be more accurately determined. Accordingly, it is intended that this plan be reviewed during the year. Management of the assets is undertaken OtagoNet with support from PowerNet Limited and Marlborough Lines Limited. OtagoNet uses one main external contractor to operate, maintain, renew, upsize and expand the network. The processes and systems used by OtagoNet are described in section 9.

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Details of the network

OtagoNet supplies14,8121 customers in Otago, with a population of 34,791.2 Key industries within OtagoNet‘s network area include sheep, beef and dairy farming, extensive meat processing, gold mining, black and brown coal mining, forestry, and timber processing.

1

As per the FY 2013 information disclosure.

2

From combined Clutha and Central Otago Territorial Authority normal resident population data from the 2013 census. The 2013 census result by town was not available at time of publishing.

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Figure 2 Overview of OtagoNet Subtransmission Network 2012

As at 31 March 2013 there were a total of 4,394 km of lines and cables comprising:

 74 km of 66kV lines and 539 km of 33 kV lines and cables.

 35 zone substations to transform High Voltage (HV) to Medium Voltage (MV).

 956 km of SWER lines and cables

 2,275 km of 11 kV lines (other than SWER) and 21 km of 11 kV cables.

 4,197 distribution transformers supplying 14,812 customers.

 24 Voltage regulators, controlling local voltage.

 499 km of low voltage (230V) lines and 28 km of cable.

The age of the network is relatively old; with the 2013 disclosure (schedule 4(vii)) showing only 46% of expected life remaining for distribution and LV lines and 39% for subtransmission lines. Comparative benchmarking, analysis of faults and the

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SUMMARY

management of risk, all points to the continued need for replacement programs particularly for the line assets.

0.3

Comparative benchmarking

This section considers OtagoNet‘s performance in comparison to all other electricity distribution businesses (EDBs) in New Zealand using data disclosed in the FY2013 information disclosure. Key findings are:

 A comparatively high proportion of faults expenditure indicative of the deteriorating condition of the network

 Direct opex expenditure comparative with other EDBs

 Indirect opex also comparative with other EDBs

 The lowest customer density of any New Zealand network at three customers per kilometre.

 An average rate of return being achieved on network investment but the second highest investment value per ICP owing to the low connection density of the network

 Reasonable SAIFI performance but noting a high prevalence of faults attributable to the quality of the network.

 A high proportion of planned SAIDI and high CAIDI although the latter is highly variable due to the radial nature of the network with long feeders and terrain which in winter is often inaccessible because of snow.

 Transformer utilisation and network losses consistent with the network characteristics noting OtagoNet‘s single largest customer utilises approximately 50% of the energy delivered over the network and this distorts overall statistics relative to losses and energy demand.

 Has one of the most ‗aged‘ networks in New Zealand, a factor which needs to be addressed relative to safety and the sustainability of the supply reliability.

Although historical statistics may be utilised for comparison with other networks, going forward the statistics for OtagoNet can be expected to change. The possible closure of its largest customer, publicly reported for circa 2017, taking approximately 50% of the energy, and the need to renew the network whilst minimising the capital burden on customers results in challenges not faced by other networks of greater customer density.

It is salient that a significant proportion of OtagoNet‘s lines were built under the previous government requirements to construct uneconomic lines with the provision of Rural Electrical Reticulation Council subsidies. A number of these lines remain uneconomic yet need replacement.

Because OtagoNet does not have a dense urban network to offset the number of customers it services in the rural areas, it is inevitable the capital investment per customer will further increase relative to other networks.

The reality is the previous owners of the network deferred maintenance and capital expenditure and unfortunately the savings of the past now have to be funded to ensure the safety of the network and to maintain reliability of supply.

0.4

Risk Management

The business is exposed to a wide range of risks. This section examines OtagoNet‘s risk exposures, describes what it has done and will do about these exposures and its disaster preparedness

Risk management is used to identify and control risk to within acceptable levels.

Highlighted risks are the potential public safety hazards arising from the deteriorated network condition, which are being addressed through an accelerated condition

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historic earthing practices on SWER transformers.

0.5

Performance and improvement

The outcome for the 2012-13 annual business plan was a 3% underspend on the $9.66M capital budget, and a 2% underspend on the $3.5M budgeted for maintenance. Forecast out-turn for the current 2013-14 year is running at -16% on the capital budget of $13.3m and +18% on the $3.7m maintenance budget, giving an overall under-expenditure of -9%.

Although this expenditure approximated to budget, it is expected the underspend will be spent prior to 2015 (2014/15 year).

Performance for duration of faults (SAIDI) and frequency of faults (SAIFI) exceeded target levels and SAIDI is close to the regulatory threshold for the 2013/14 year. The network was adversely affected by the winter storms in 2013. However, given the radial nature of the network and the propensity of the network to be affected by snow, it is salient to note that the reliability of the network will always be subject to the vagaries of weather. Further, that when outages occur, snow and inaccessibility can impede restoration of supply as occurred during the winter of 2013.

The majority of secondary service level target were achieved3. Utilisation was on target. Network losses were below target due to a change in the metering location of the network‘s largest load and new targets have been set to recognise this in the future.

Strategies are planned and described to improve performance particularly in areas of strengthened capital governance and management, improved processes for recording and using line condition information and reducing planned outages through the application of more mobile generation.

0.6

Proposed service levels

The outcome of customer consultation undertaken by a telephone survey, public meetings and one-on-one meetings showed the majority of customers are content with the present level of service but the expectations of customers vary depending upon their individual requirements such as milking, irrigation and their dependency upon electricity as an essential service in a harsh winter climate.

Irrespective, customers do not want a lesser level of service and have an expectation going forward that reliability of supply will be at least maintained or improved.

Positive feedback has been received relative to the increased levels of maintenance and capital expenditure undertaken on the network in recent years.

The surveyed customers have indicated that they value continuity and then restoration most highly and therefore OtagoNet‘s primary service levels are continuity and restoration. To measure performance in this area two internationally accepted indices have been adopted:

 SAIDI – system average interruption duration index. This is a measure of how many system minutes of supply are interrupted per year per customer connected to the network.

 SAIFI – system average interruption frequency index. This is a measure of how many system interruptions occur per year per customer connected to the network. Projections of these measures for the next ten years are set out below and are based on meeting or exceeding the supply quality requirements set out by the Commerce Commission and enacting the strategies set out in this plan.

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SUMMARY

Target levels for unplanned outages have been calculated by averaging the values over the regulatory period (2004/05 – 2008/09) (allowing for normalisation to remove extreme events as per the Commerce Commission guidelines), and decreasing future years by 0.5% p.a. However this proposed reduction is an interim target only and will be reviewed as part of the reassessment of the network to be undertaken this year. Indeed, recent failures have indicated that unless expenditure is maintained or increased reliability will diminish. Target levels for planned outages have been maintained constant acknowledging that OtagoNet remains uncertain of the planned reliability impacts of its work programme mainly due to the unknown extent of the condition driven work.

Table 1 – Primary service levels

SAIDI SAIFI

Year End Class B Class C Total Class B Class C Total

Limit 361.08 3.120 31/03/15 148 175 323 0.63 2.07 2.70 31/03/16 148 174 322 0.63 2.06 2.69 31/03/17 148 173 321 0.63 2.05 2.68 31/03/18 148 173 320 0.63 2.04 2.67 31/03/19 148 172 319 0.63 2.03 2.66 31/03/20 148 171 318 0.63 2.02 2.65 31/03/21 148 170 318 0.63 2.01 2.64 31/03/22 148 169 317 0.63 2.00 2.63 31/03/23 148 168 316 0.63 1.99 2.62 31/03/24 148 168 315 0.63 1.98 2.61

Class B are planned interruptions on the network and Class C are unplanned interruptions on the network, commonly known as faults.

0.7

Development Plans

Annual growth of the network energy and demand has been 1.4% to 1.5% over the last 10 years with demand growth relatively flat over the last 5 years. Most growth in energy delivered has been with the HV (industrial or large commercial) customers. Based on long run historic trends, the future increase in demand is predicted at a rate of 1.5% per annum over the larger network. This, however, excludes OtagoNet‘s largest single customer, for which closure has been announced circa 2017 and which would incur a one-off drop in demand of 42% and reduce delivered energy by 53% should this occur. As this customer is essentially supplied via a dedicated 66kV line paid for by the customer there will be minimal effect to the network in terms of stranded assets should it close.

Typically domestic customers are reducing demand through the more efficient utilisation of electricity and consolidation of connections points and growth in total customer numbers has been generally static in recent years.

Against this background, growth in demand has occurred in specific areas with increased demand for timber and milk processing and the conversion of sheep farms to dairying. The latter also has requirements for increased levels of irrigation particularly in the Maniatoto area where already approximately 1MW of additional capacity has been requested for later in the year.

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Figure 3 Historic energy and maximum demand

Network development focuses on completion of the Transpower Palmerston GXP and 110 kV line purchase, projects associated with this to take full advantage of this network re-configuration to yield improved reliability and projects to meet customer demand in specific areas. Major projects planned over the next ten years are:

 Transpower Palmerston & 110kV line purchase completion

 Merton Substation replacement to increase capacity and replace old assets.

 North Otago East supply reconfiguration to increase capacity and replace old assets.

 New substation at Puketoi to take up new irrigation load.

 Milton Elderlee Street Substation replacement to increase capacity and replace old assets.

Planned development capital expenditure averages about $4.3 million per annum.

0.8

Managing the asset’s lifecycle

The asset lifecycle used by OtagoNet once assets are built, is: Operation, Maintenance, Renewal, Up-sizing, Extensions and Retirement.

Analysis will be undertaken to review network condition and performance to check if any trigger is exceeded and actions planned to maintain target service levels.

A number of pole failures at loads less than design load, including some unassisted pole failures, have highlighted gaps in both the identification of condition and the recording and application of the line inspection data. In response to the potential hazards posed from unknown lines condition, OtagoNet has revised its line inspection template, streamlined its data capture processes and has commenced a one-off 1-year accelerated inspection cycle of its full network at a total cost of $1.5m with $967k allocated for FY2015. This is justified on public safety considerations and to maximise efficiency of expenditure. An additional $500k is set provisionally in the FY2015 maintenance budget to cover priority maintenance works that are likely to be discovered during the detailed condition inspections but should the asset assessments

0 50 100 150 200 250 300 350 400 450 0 10 20 30 40 50 60 70 80 90 1 9 5 0 1 9 5 2 1 9 5 4 1 9 5 6 1 9 5 8 1 9 6 0 1 9 6 2 1 9 6 4 1 9 6 6 1 9 6 8 1 9 7 0 1 9 7 2 1 9 7 4 1 9 7 6 1 9 7 8 1 9 8 0 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 E ne rgy -(G W h) M a x im u m D e m a n d -(M W )

OJV Historic Energy and Maximum Demand

(showing with and without Macraes Gold Mine Load)

Base MW (excl. Macraes) Total MW

Base GWh (excl. Macraes) Total GWh

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SUMMARY

determine additional work is necessary to improve the safety of the network or eliminate potential outages, such work will be undertaken. Condition driven renewal is budgeted at approximately $6.1m p.a. as detailed further in this plan.

Focus for the longer term is to increase the network performance by progressively rebuilding the older lines with impaired performance and to reduce the average age of the network closer to 50% average remaining life. Vegetation control and minor maintenance will also be targeted to help reduce outages.

Improved network information will result from increased network surveillance and will enable expenditure to be better targeted to maximise benefit.

0.9

Processes and systems

Asset information resides in three key locations: Geographical Information System (GIS), Asset Management System (AMS), and Supervisory Control And Data Acquisition (SCADA).

A review of the information available from these systems has been undertaken and it has been determined improvements can be made relative to the capture, recording and accessibility of data.

Because of the importance of the availability of accurate information for maximising customer reliability, targeting and managing expenditure and ensuring regulatory compliance, it is intended to invest in the order of $1m in the 2014/15 financial year into the development of these systems.

This plan highlights needed improvements in the collection and analysis of asset condition data through the GIS, improvements in the collection and analysis of fault data and in on-going improvement in the accuracy of the asset locations.

0.10 Resourcing the business

Resourcing an operation such as OtagoNet in rural New Zealand imposes its unique challenges. Further, because of the relatively small customer base and revenue, it is imperative all resources are utilised efficiently.

0.11 Regulatory compliance of this plan

This plan is required to comply with the Electricity Distribution Information Disclosure Determination 2012 (EDIDD) appendix A (Asset Management Plans) which sets out the required content of the AMPs. Compliance with the EDIDD is tabulated in Appendix A which maps clause requirements of the EDIDD to the section headings in this AMP.

Forecast budgets provided in this plan are expressed in FY2014 dollars (real).

0.12 Feedback and comments

Comment on this plan is welcome and should be addressed to the Network Manager (OtagoNet), OtagoNet Ltd, PO Box 1586, Invercargill or email amp@powernet.co.nz. The next review of this AMP is planned for publishing in March 2015.

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1.

Background and objectives

OtagoNet Joint Venture (OtagoNet) is the electricity lines business that conveys electricity throughout the North, South, East and some of central Otago (except for the majority of Dunedin City) to approximately 14,812 customer connections on behalf of six energy retailers. The wider OtagoNet entity also includes the following associations:

 Owned by three entities:

- 51% by Marlborough Lines Limited (MLL). - 24.5% by Electricity Invercargill Limited (EIL). - 24.5% by The Power Company Limited (TPCL).

 Supported by PowerNet, an electricity lines management company jointly owned by TPCL and EIL, for corporate services, financial and commercial management, enterprise business systems, system control and administrative services.

 Supported by Marlborough Lines Ltd for engineering support.

 Otago Power Services Ltd, an electrical contracting company based in Balclutha, which has the same owners as OtagoNet and which is managed by MLL. It undertakes the majority of OtagoNet capital and maintenance expenditure.

This AMP deals solely with the OtagoNet electricity network assets and non-network assets as defined by the Electricity Distribution Information Disclosure Determination 2012 (EDIDD).

The OtagoNet‘s Asset Management and Planning Processes are based on previous AMPs, company standards & processes (e.g. PNM-105).

The objective for OtagoNet‘s Asset Management and Planning Processes is to maintain and develop the OtagoNet assets to achieve all stakeholders target service levels.

1.1

History of the Network

The network was largely constructed under the auspices of the former Otago Electric Power Board, a special purpose entity formed in 1923 under the provisions of the Electric Power Board Act.

As a requirement of the Electricity Companies Act 1992, the Otago Electric Power Board was obliged to corporatise. This was achieved following public consultation and transformed into the customer cooperative Otago Power Limited ("OPL") with shares allocated to customers. In 1998 OPL was obliged by government regulation to divest either its line business or its generation and electricity retail business and it elected to sell the latter.

In 2003 the Board of the cooperative opted to sell the assets of the company by tender and return the proceeds to the customers connected to the network relative to the number of shares each were given. A domestic customer typically received a sum in the order of $5,000 and commercial customers received greater amounts relative to their electricity payments.

The Otago network is unusual in that it provides supply to a predominantly rural network and much of its reticulation was constructed with the support of RERC subsidy because the lines were uneconomic. It is the least dense network in New Zealand. The construction of such uneconomic lines was required by the legislation of the day. Because of the low customer density and in an endeavour to minimise costs, the lines were frequently constructed to a standard below that required today.

The Otago Electric Power Board operated on a minimal cost basis with low levels of reinvestment and its successor, the cooperative company Otago Power Limited, acted similarly.

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BACKGROUND AND OBJECTIVES

As a consequence when the current owners of OtagoNet acquired the assets in 2003 they were in a less than ideal condition. A condition of sale was that line charges be held for three years from 2003 which meant that maintenance and capital expenditure was constrained and costs were minimised.

In recognition of historic low expenditure on replacement capital and the consequent poor condition of the lines and substation assets, OtagoNet commenced and continues a programme of capital investment to reduce the network average age, improve the network reliability and resilience and meet safety requirements. This programme of needed capital investment has necessitated increases in line charges noting that rebuilding lines is considerably more expensive than green fields construction and is being undertaken without the regime of central government subsidy that most of these rural lines were initially built under.

Hence from 2006 the capital and maintenance expenditure has been increased as depicted in the chart below.

The marked increment in expenditure in the above graph is indicative at the time of preparation of this report. Substantive surveillance work on the network is planned over the next few months to verify the need for the renewal expenditure together with finalisation of a potential customer‘s significant requirements requiring network augmentation. Accordingly it is intended to issue a further revision of this plan when additional information is available. Revenue levels have already been set for the coming year based on information previously provided to the Commerce Commission and from a financial perspective it is preferable to maintain the expenditure at previously determined levels. Irrespective, OtagoNet is conscious of its obligations in relation to the delivery of electricity and will increase expenditure as required to meet its priorities and statutory obligations. The increase in expenditure described in this plan is reflective of the situation known at the time of publishing this AMP.

1.2

Purpose of the Asset Management Plan

The purpose of the AMP is to provide a governance and management framework that ensures that OtagoNet:

 Assets, systems and procedures meet all regulatory requirements including safety requirements.

 Sets service levels for its electricity network that will meet customer, community and regulatory requirements.

 Understands the network capacity, reliability and security of supply that will be required both now and in the future and the issues that drive these requirements.

$0k $2,000k $4,000k $6,000k $8,000k $10,000k $12,000k $14,000k $16,000k $18,000k Exp e n d itu re ($k )

Historic and forecast expenditure

(CPI adjusted) Total Capital Maint. Total Capital Maint.

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network life cycle from commissioning to disposal.

 Has adequately considered the classes of risk OtagoNet‘s network business faces

and that there are systematic processes in place to mitigate identified risks.

 Has made adequate provision for funding all phases of the network lifecycle.

 Makes decisions within systematic and structured frameworks at each level within the business.

 Has an ever-increasing knowledge of OtagoNet‘s asset locations, ages, condition

and the assets‘ likely future behaviour as they age.

Status of this AMP is ‗Applying‘ with some processes in use in OtagoNet and Otago Power Services.

Disclosure of OtagoNet‘s AMP in this format will also assist in meeting the requirements of Section 2.6 and Schedules 11, 12, and 13 of the Electricity Distribution Information Disclosure Determination 2012.

This AMP is not intended to be a detailed description of OtagoNet‘s assets (these lie in other parts of the business), but rather a description of the thinking, the policies, the strategies, the plans and the resources that OtagoNet uses and will use to manage the assets.

1.3

Interaction with other goals and drivers

All of the assets exist within a strategic context that is shaped by a wide range of issues including OtagoNet‘s mission statement and business plan, the prevailing regulatory environment, government policy objectives, commercial and competitive pressures and technology trends. OtagoNet‘s assets are also influenced by technical regulations, codes of practice, asset deterioration, network performance, natural processes, and risk exposures all independent of the strategic context.

1.3.1

Strategic context

The strategic context includes many issues that range from the state of the local economy to developing technologies. Issues that OtagoNet considers include:

 The prevailing regulatory environment which determines prices, requires no material decline in reliability and requires that OtagoNet compile and disclose performance and planning information.

 Government policy objectives, such as the promotion of distributed generation (particularly renewables).

 OtagoNet‘s commercial goal to deliver a sustainable earnings stream to its owners that represent an acceptable rate of return.

 Pressure from substitute fuels both at the end-user level (such as substituting electricity with coal or oil at a facility level) and at bulk generation level (wind farms) including the utilisation of diesel engines to provide motive power for pumps.

 Advancing technologies such as fuel cells, improved batteries and current technologies of micro-wind and photovoltaic, which could potentially strand some reticulation.

 Local, national and global economic cycles, in particular the trends in global pastoral commodity prices which can influence the use of land from very passive to very electro-intensive and the consequent change in the customers need for capacity and reliability.

 Changes in climate that may include more storms and hotter, drier summers (prompting greater irrigation loads).

 The economic climate and interest rates which can influence the rate at which new customers connect to the network and the shareholders required rate of return.

 Aggregation of connection points (ie customer‘s sub-mains replacing individual

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BACKGROUND AND OBJECTIVES

 Availability of sufficient resources long term to satisfy OtagoNet‘s service

requirements.

1.3.2

Independence from strategic context

Further factors apply independent of the strategic context including:

 Safety requirements such as; the earthing of exposed metal, line clearances, ensuring the network assets are physically sound and generally ensuring the network does not impose unacceptable risk to customers, the public, contractors and staff.

 Technical regulations including such matters as limiting harmonics to specified levels.

 Asset configuration, condition and deterioration.

 Natural processes and laws which govern such fundamental issues as power flows, insulation failure and faults.

 Physical risk exposures. Exposure to events such as wind, snow, earthquakes and vehicle impacts are generally independent of the strategic context. Issues in which risk exposure may depend on the strategic context could be in regard to natural issues such as climate change increasing the severity and frequency of storms or regulatory issues -for example if LTNZ were to require all poles to be moved back from the carriage way.

 Landowner agreement for property access.

1.3.3

Annual Business Plan and works plan

In each year, the first year of the AMP is consolidated with any recent strategic, commercial, asset or operational issues into OtagoNet‘s annual business plan. This defines the priorities and actions for the year ahead and which contribute to OtagoNet‘s long-term alignment with its strategic goals.

An important component of the annual business plan is the annual works plan which scopes and costs each individual activity or project that the company expects to undertake in the year ahead. A critical activity is to firstly ensure that this annual works plan accurately reflects the current year‘s projects in the AMP and secondly ensure that each project is implemented according to the scope prescribed in the works plan. Fundamental is a need to utilise information relative to the performance of the network and information gained from surveillance in setting and targeting the expenditure.

1.4

Key planning documents and processes

Interactions of the key planning issues, processes and documents are shown in Figure 4.

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Figure 4 - Interaction of key plans

1.4.1

Vision statement

To operate as a successful business in the distribution of electricity in the Otago region.

1.4.2

Strategic plan

Key asset management drivers from OtagoNet‘s Strategic Plan are:

1. Ensure public, customers, contractors and staff are safe relative to all aspects of the network operations. This includes adherence to all regulatory requirements and recognised industry practice.

2. Delivery to the customers of an economic, safe, efficient and quality electricity supply.

3. Maintaining and enhancing the long term value of assets, business units, products and investments.

Varying Condition

Service Levels Assets Annual Business Plan incl. Works Programme

Issues Dependent on Strategic Context

 Regulatory Environment

 Government Policy Objectives

 Commercial Goals  Competitive Pressures  Substitute Fuels  Technology Trends  Economic Cycles  Interest Rates

Asset Management Plan

Issues Independent from Strategic Context  Safety Requirements  Technical Regulations  Asset Configuration  Asset Deterioration  Asset Condition  Natural Processes

 Physical Risk Exposures

Influences & Constraints

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BACKGROUND AND OBJECTIVES

4. Working with the Commerce Commission to achieve:

- Regulated prices which enable customers to enjoy a long term reliable and sustainable network connection and

- Result in a reasonable commercial return on equity to the owners to enable continued support and investment in the business.

1.4.3

Asset strategy

OtagoNet continues to develop its detailed asset strategy to meet its corporate goals and in response to the performance levels it achieves. The following are our key asset strategies that are further supported and developed in this plan:

 Improve reliability by:

- managing deteriorating assets through condition inspection and replacement; - sectionalising poorly performing feeders;

- reduce planned SAIDI by greater use of mobile generation where feasible and economic; and

- expand the meshed area of the network where practical by closing gaps between radial feeders but noting that options in this regard are extremely limited.

 Control costs and manage economic and regulatory risk by:

- employing strong capital governance and management processes;

- using condition-based assessments in the replacement and maintenance of assets;

- identifying and managing network risks;

- directing investment towards reliability improvement and the more economic sections of the network.

 Meet safety and environmental standards by:

- identifying and managing network health, safety and other risks including external review;

- achieving full regulatory compliance;

- ensuring compliance with internal network standards; and - utilising applicable codes of practice.

1.4.4

Prevailing regulatory environment

OtagoNet‘s assets are subject to a price path threshold established under Part 4 of the Commerce Act 1986. OtagoNet is subject to information disclosure requirements (including the requirement to publish an AMP) along with other structural regulations such as restrictions on generating and retailing energy, and the requirement to connect embedded generation.

1.4.5

Government objectives

Electricity lines businesses are increasingly required to give effect to many aspects of government policy, namely:

 Facilitating the connection of distributed generation on a regulated basis.

 Improving the already high levels of public safety around power lines and transformers.

 Offering variable tariff components to promote demand reduction despite the most cost reflective tariff structure for a lines business being that of fixed cost.

 Continuance of supply regulations that require the provision and maintenance of existing lines that may be uneconomic.

 Price increases in rural areas to be no greater than those prevailing in urban areas.

1.4.6

Annual business plan

An Annual Business Plan (ABP) which is produced by OtagoNet and which contains the following:

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 Customer Service and Commercial Objectives, and Action plan.

 Annual Capital Works Programme and the Annual Works Plan (AWP) for the following four years.

 Business Plan Financials.

1.4.7

Annual works plan

The Annual Works Plan (AWP) details the works to be undertaken for each financial year, and is incorporated into the ABP. All of next year‘s works, listed in the AMP, are included in the AWP.

1.5

Interaction of goals and strategies

The below table shows the linkage between the Corporate and Asset Management Strategies:

Corporate Strategies

Delivery to the customers of an economic, safe, efficient and quality electricity supply and meets all legislative requirements.

Maintaining and enhancing the long term value of assets, business units, products and investments.

Deliver a reasonable commercial return on equity. Achieve a long term reliable electricity supply.

Asset Management Strategies

Sectionalising poorly performing feeders  

Continue to expand the meshed area of the network  

Manage deteriorating assets through condition inspection and replacement

   

Reduce planned SAIDI by employing mobile generation where feasible and economic

 

Employ strong capital governance processes    

Identifying and managing network health, safety and other risks     Direct investment towards reliability and the more economic sections of

the network

  

Achieve 100% regulatory compliance  

Ensure compliance with internal network standards  

1.6

Period covered by Asset Management Plan

This edition of OtagoNet‘s AMP covers the period 1 April 2014 to 31 March 2024. This AMP was prepared during January to March 2014, approved by OtagoNet‘s Governing Committee in March 2014 and publicly disclosed at the end of March 2014.

Uncertainty is a factor in any planning process and accordingly the plans set out in this AMP include a degree of uncertainty. Customer demand driven by turbulent commodity markets, public policy trends and possible generation opportunities within OtagoNet‘s demand profile means the future is perhaps less certain than many other infrastructure businesses of greater scale. Accordingly, OtagoNet has attached the following certainties to the timeframes of the AMP:

Timeframe Residential and Commercial Large Industrial Intending Generators

Year 1 to 2 Reasonably certain Reasonably certain Reasonable certainty Years 3 to 5 Less certain Little if any certainty Little if any certainty

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BACKGROUND AND OBJECTIVES

Years 6 to 10 Little if any certainty Little if any certainty Little if any certainty

1.7

Stakeholder interests

1.7.1

Stakeholders

A stakeholder is defined as any person or class of persons who:

 Has a financial interest in OtagoNet (be it equity or debt).

 Is physically connected to OtagoNet‘s network.  Uses OtagoNet‘s network for conveying electricity.  Supplies OtagoNet with goods or services.

 Is affected by the existence, nature or condition of the network (especially if it is in an unsafe condition).

 Has a statutory obligation to perform an activity in relation to the OtagoNet network‘s existence (such as request disclosure data or regulate prices).

1.7.2

Stakeholder interests

The interests of OtagoNet‘s stakeholders are classified in Table 2:

Table 2 – Key stakeholder interests

Interests

Viability Price Quality Safety Compliance

Shareholder     

Bankers    

Connected customers     

Contracted managers (PowerNet and

Marlborough Lines)     

Energy retailers     

Mass-market representative groups     

Industry representative groups     

Staff and contractors    

Suppliers of goods and services    

Public   

Land owners   

Councils (excluding as a customer)   

Transport Agency  

Ministry of Economic Development    

Energy Safety Service  

Commerce Commission     

Electricity Authority    

Electricity & Gas Complaints Commission    

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identified.

Table 3- How stakeholder’s expectations are identified

Stakeholder How expectations are identified

Owners By their approval or required amendment of the Business Plan.

Regular meetings between the directors and executive.

Bankers Regular meetings between the bankers and

PowerNet‘s Chief Executive and GM Finance. By adhering to OtagoNet‘s treasury/borrowing policy

By adhering to banking covenants. Connected Customers Regular discussions with large industrial

customers as part of their on-going development needs.

Annual customer surveys and feedback from OtagoNet Newsletters

Contracted Managers (PowerNet and Marlborough Lines)

Chairman and Management Committee meeting with the Chief Executive as required.

Energy Retailers Annual consultation with retailers.

Mass-market Representative Groups Informal contact with group representatives. Industry Representative Groups Informal contact with group representatives. Staff & Contractors Regular staff briefings.

Regular contractor meetings. Suppliers of Goods & Services Regular supply meetings. Public (as distinct from customers) Informal discussions.

Feedback from public meetings. Land Owners Individual discussions as required.

Councils (as regulators) Formally as necessary to discuss issues such as assets on Council land.

Formally as District Plans are reviewed. Transport Agency Formally as required.

Ministry of Economic Development Regular bulletins on various matters.

Release of legislation, regulations and discussion papers.

Analysis of submissions on discussion papers. Energy Safety Service Promulgated regulations and codes of practice.

Audits of OtagoNet‘s activities.

Audit reports from other lines businesses. Commerce Commission Regular bulletins on various matters.

Release of discussion papers.

Analysis of submissions on discussion papers. Conferences following submission process. Electricity Authority Weekly update.

Release of discussion papers. Briefing sessions.

Analysis of submissions on discussion papers. Conferences following submission process. General information on their website.

Electricity & Gas Complaints Commission Reviewing their decisions in regard to other lines companies.

Ministry of Consumer Affairs Release of legislation, regulations and discussion papers.

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BACKGROUND AND OBJECTIVES

1.7.3

Meeting stakeholder interests

Table 4 provides a broad indication of how stakeholder interests are met:

Table 4 – Accommodating stakeholder interests

Interest Description How OtagoNet meets interests

Safety Staff, contractors and the public at large must be able to move around and work on the network in total safety.

The public at large are kept safe by ensuring that all above-ground assets are structurally sound, live conductors are well out of reach, all enclosures are kept locked and all exposed metal is earthed. The safety of our staff and contractors is ensured by providing all necessary equipment, improving safe work practices and ensuring that they are stood down in unsafe conditions.

Contractors will use all necessary safety equipment, improve their safe work practices and ensure that they stand down in unsafe conditions.

Motorists will be kept safe by ensuring that above-ground structures are kept as far as possible from the carriage way within the constraints faced in regard to private land and road reserve. An improved surveillance program has been initiated to ensure the network is compliant in these regards.

Viability Viability is necessary to ensure that the

shareholder and other providers of finance such as bankers have

sufficient reason to keep investing in OtagoNet.

Stakeholders‘ needs for long-term viability are accommodated by delivering earnings that are sustainable and reflect an appropriate risk-adjusted return on employed capital. In general terms this will need to be at least as good as the stakeholders could obtain from a term deposit at the bank plus a margin to reflect the ever-increasing risks to the capital in the business.

Earnings are set by estimating the level of

expenditure that will maintain Service Levels within targets and the revenue set to provide the required returns.

Price Price is a key means of both gathering revenue to sustain the business and signalling the true underlying costs.

OtagoNet‘s total revenue is constrained by the default price quality path regime. Prices are

controlled with the CPI-X price path with X set at 0% in the current Price Reset which runs to 1 April 2015. The opportunity exists to apply to the Commerce Commission for a Customised Price Path in circumstance where prices are insufficient to fund the business.

The regulatory regime also applies a building-block approach for setting allowed revenue based on the business‘s forecast operating and capital

requirements and where revenue claw-backs in the next period may be applied if the business fails to expend those budgets.

OtagoNet‘s pricing methodology is expected to be cost-reflective, but issues such as the Low Fixed Charges requirements can distort this.

Supply quality

Emphasis on continuity then restoration of supply and reducing flicker is essential to minimising interruptions to

customers‘ businesses.

Stakeholders‘ needs for supply quality will be accommodated by focusing resources on continuity and then rapid restoration of supply. The most recent mass-market survey indicated a general satisfaction with the present supply quality.

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Compliance Compliance is necessary with many statutory requirements ranging from safety to disclosing information.

All safety issues will be adequately documented and available for inspection by authorised agencies. Performance and other regulatory disclosure information will be provided in a timely and compliant fashion.

1.7.4

Management of conflicting interests

Conflicts exist in simultaneously meeting all stakeholders interests ie between price, commercial return and reliability. Priorities for managing conflicting interests are:

 Safety. Top priority is given to safety. The safety of staff, contractors and the public will not be compromised even if budgets are exceeded.

 Compliance. Legislative compliance is paramount to proper governance and operation of any business.

 Viability. Third priority is viability of the business (as defined in 1.7.3 above), as the business needs to sustain itself in order to provide a network service to its customers.

 Pricing. OtagoNet will give forth priority to pricing noting that pricing is also an aspect of viability. OtagoNet recognises the need to adequately fund its business whilst ensuring that its customers‘ businesses can operate successfully and there is not an unjustified transfer of wealth from its customers to its shareholders.

 Supply quality is the fifth priority. Good supply quality minimises economic loss to OtagoNet‘s customers.

1.7.5

Customer consultation

Consultation was undertaken by four methods, firstly a phone survey of 200 customers was undertaken by external consultants. A copy of the questionnaire used is attached in appendix B.

The second method was a face to face survey by the survey company with major customers. Overall customers did not wish to pay more but expected reliability of supply to improve or at least be maintained.

Thirdly OtagoNet held community consultation meetings at various locations throughout the network, where direct feedback was obtained.

Lastly, individual customers are consulted as they undertake connection to the network or consider upgrades. An example was the Greenfields Dairy processing plant near Clydevale and this has required numerous options and negotiations before the final solution was agreed.

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BACKGROUND AND OBJECTIVES

Figure 5 Greenfields Substation

1.7.6

Uneconomic connections

Within OtagoNet‘s network there is an inherent level of cross-subsidy between consumers as the proportion of asset value needed for each connection on the network is not uniform. A consumer adjacent to Charlotte St zone substation in Balclutha is supported by the short subtransmission lines between the Balclutha grid exit point and this zone substation, the Charlotte St zone substation transformation and switching capacity, and the small length of distribution line to the consumers installation. Additionally, all of the network assets upstream of this consumer are shared over a large number of other consumers in Balclutha. In contrast, a consumer on a farm out of Hindon is supported by much longer subtransmission lines, proportionately more transformation capacity (due to lower diversity) and long 11 kV or SWER distribution lines which are shared over a relatively few consumers. Maintenance costs are also proportionately higher for the rural consumer as these costs scale with network length. However, both consumers pay uniform capacity charges.

Cross-subsidy exists in all electricity network businesses employing uniform charging to a greater or lesser extent largely dependent on the connection density of the network. In OtagoNet‘s case, it has the lowest connection density of all EDBs in New Zealand.4 Consequently, dealing with uneconomic connections is a substantial issue for the company.

The extent of the issue is illustrated in the following chart of Figure 6 below. This plots the cumulative percentage of network connections (x-axis) against the cumulative percentage of network asset value needed to support those connections. This shows that approximately 50% of the network value is utilised by the last 22% of the network connections and highlights the extent of the cross-subsidy inherent in the network configuration.5

4

FY2013 disclosure has OtagoNet at 3 connections per km of line and this compares to Wellington Electricity at 36 connections per km.

5

This should be considered a conservative estimate as operational costs are not included and these approximately scale in proportion to network length.

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Figure 6 Network cross subsidy

Whilst differential charging is not being considered at this time, the issue is highlighted with generally static growth in urban areas and lower consumer demand from the impact of energy efficiency and photovoltaic uptake, which will potentially result in a greater subsidy if network charges continue to be recorded on a variable basis.

In regard to asset management, consideration of the uneconomic nature of some connections, lines, and even zone substations, requires the prioritisation of capital works towards the more economic parts of the network. For the avoidance of doubt we note that any works addressing safety issues do not consider the economic return from the affected connections.

As measures of reliability such as SAIDI react most to outages on the parts of the network that affect large customer numbers, there is a natural favouring of the more economic parts of the network when works are directed based on their impact on reliability and OtagoNet directs its capital and maintenance expenditure in part through this mechanism.

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BACKGROUND AND OBJECTIVES

1.8

Accountabilities for asset management

OtagoNet‘s ownership, governance and management structure is depicted below in Figure 7.

Figure 7 - Governance and Management Accountabilities

1.8.1

Accountability at governance level

As OtagoNet uses a Governing Committee to represent the multiple owners and contracts to PowerNet for corporate services, financial and commercial management, regulatory management, enterprise business systems, system control and administrative services and Marlborough Lines for engineering support and so it effectively has a two-tier governance structure as follows:

 The first tier of governance accountability is between the Governing Committee and the Boards of the respective owners with the principal mechanism being the Statement of Intent (SOI). Inclusion of reliability targets in the SOI makes the Governing Committee ultimately accountable to the shareholders for these important asset management outcomes whilst the inclusion of financial targets in the SOI makes the Governing Committee additionally accountable for overseeing the price-quality trade-off inherent in projecting expenditure and reliability. Members of the Governing committee are:

- Terry Shagin (Chairman) - Alan Harper

- Ken Forrest - Neil Boniface

 The second tier of governance accountability is between the Governing Committee and the PowerNet and Marlborough Lines Boards with the principal mechanism being the management contracts.

Invercargill City Council (100%) Invercargill City Holdings (100%) Electricity Invercargill Board of Directors (100%) Pylon (24.5%) Marlborough Electric Power Trust (100%) Marlborough Lines Board of Directors (100%) Southern Lines (51%)

SEPS Consumer Trust (100%)

The Power Company Board of Directors

(100%)

Last Tango (24.5%)

Otago Joint Venture Governing Committee

PowerNet

Corporate services; financial and commercial management; enterprise business systems; system control; admin services

Ownership

Governance

Management

Marlborough Lines Engineering

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Accountability for corporate services, financial and commercial management, regulatory management, enterprise business systems, system control and administrative services rests with the chief executive of PowerNet Limited and accountability for engineering matters rests with the chief executive of Marlborough Lines Limited. The mechanism of accountability is through the management contracts to the OtagoNet Management Committee.

1.8.3

Accountability at operational level

The individual managers who have the most influence over the long-term asset management outcomes will be the Engineering Manager and Network Manager (Otago) through their preparation and execution of the AMP which will guide the activities and direction of others.

1.8.4

Accountability at construction/maintenance level

Otago Power Services Limited is used almost exclusively for all construction, replacement and maintenance services, as a contractor, except for some specialist work. The principal accountability mechanism is through a contract between Otago Power Services and OtagoNet.

1.8.5

Key reporting lines

The OtagoNet Governing Committee receives a monthly report that covers the following items:

 Network Safety – safety performance reported and issues highlighted, with progress to eliminate, mitigate or manage reported

 Network reliability – this lists all outages over the last month, and trends regarding the reliability targets

 Network Quality – detail of outstanding voltage complaints and annual statistics on them

 Network Connections – monthly and yearly details of connections to the network

 Use of Network – trend of the energy conveyed through the network

 Revenue – detail on the line charges and other miscellaneous revenue received

 Retailer activity – detail on volumes and numbers per energy retailer operating on the network

 Works Programme – monthly and YTD6 expenditure on each works programme item and percentage complete, with notes on major variations

 Key Performance Indicator measures

Each level of management has defined financial limits in the OtagoNet Financial Authorities Policy. This requires any new project over $100,000 or variation to the approved Annual Works Plan by more than +10% or -30%, to have Governing Committee approval. Generally most projects are approved by the Governing Committee in the Annual Business Plan process.

1.9

Systems and processes

OtagoNet‘s systems and processes are described in detail in section 9. Specific asset inspection and network maintenance strategies are described in section 8.3.

6

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OUR NETWORK

2.

Description of network

2.1

Service area

2.1.1

Regions covered

The distribution area covers three geographically distinct areas:

 The south and west Otago area that stretches from Lake Waihola to Owaka and inland to Clinton.

 The north Otago coast from Waitati to Shag Point.

 The inland north Otago area from Falls Dam south to Hindon.

Figure 8 - Distribution Area

Topography varies as follows:

 Flat fertile plains and rolling hills in the south and west Otago area that includes townships of Milton, Balclutha, Owaka and Clinton.

 Rolling countryside along the north Otago coast that includes townships of Waitati, Waikouaiti and Palmerston.

 Dry flat plains, rolling hills and mountainous areas in the inland north Otago area that includes townships of Naseby and Ranfurly, the Macraes Mine and stretches as far south as Middlemarch, Clarks Junction and Hindon.

Under the regulatory requirements, OtagoNet treats all areas similarly with no separated or segmented disclosure as all areas are connected electrically with the northern and southern MV networks connecting at Lake Mahinerangi.

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The normal resident population in the main territorial authorities of Clutha district and Central Otago district comprise 34,785 residents with a largely static population in Clutha and a slowly rising population in Central Otago as illustrated in Figure 9 below.7

Figure 9 Territorial population trend

Of note is the distinctly aging nature of the populations in both districts but particularly in the Central Otago district as evident in the shift in the population mode between the 2006 and 2013 census, which is illustrated in the chart of Figure 10 below.

Figure 10 Population age profile by region

OtagoNet‘s total connections are relatively static as described in Table 5 and Figure 11 following.8 [Note that the increase in ―crop growing‖ connections relates mainly to new irrigation pump connections often associated with grass growing for dairy farming].

7

Source 2013 Census data. Note this differs to the FY2012 AMP that used the 2006 census for which populations by towns solely within the OtagoNet area were available.

8

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OUR NETWORK

Table 5 - ICP counts by year

Disclosure Year Total Network

Connections 2008 14,747 2009 14,761 2010 14,768 2011 14,801 2012 14,824 2013 14,812 2014 (estimated) 14,740

Figure 11 Trends in ICPs by type (not all categories included)

Whilst the population in the areas served by OtagoNet is aging, the drop in domestic connections does not necessarily relate to a fall-off in domestic consumers but mostly

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charges on multiple connections by sub-maining barns or workshops into a single non-domestic connection. This reduces the total non-domestic connections while maintaining (or sometimes reducing) the number of non-domestic connections. This highlights that electricity charges are at a level where consumers in particular circumstances are investing to limit or avoid these charges, which in turn reduces OtagoNet‘s line charge revenue.

The rise in dairy farm operations, particularly in the Central Otago region, is a notable feature with an expectation of continued growth in the near term as noted in the dairy herd and land use statistics published by the dairy industry and as illustrated in Figure 12 following:9

Figure 12 Dairy farming trends by region

The challenge for OtagoNet from these demographics will be in managing its capital replacement program in the face of a potentially diminishing connection base to support the network service costs and the increase in the number of dairy farm connections, which are more sensitive to service outages.10 These challenges are

9

FY2008 to FY2013 annual reports; Dairynz; www.dairynz.co.nz/publications

10

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OUR NETWORK

addressed through asset management strategies reinforcing capital expenditure governance processes to maintain or reduce planned and fault outages.

2.1.3

Large Consumers

The largest consumer in the area is a gold mine but other large consumers include extensive meat and dairy processing and forestry and timber processing and increasingly dairy farming. Most of the towns in the service area are rural service towns.

The area‘s economic fortunes will therefore be strongly influenced by:

 Market for gold

 Markets for basic and specialised meats such as beef, mutton and lamb.

 Markets for dairy products.

 Markets for processed timber.

 Markets for black and brown coal.

 Government policies on mining of coal.

 Government policies on forestry and nitrogen-based pastoral farming.

 Access to water for crop and stock irrigation, especially in north and central Otago.

The impact of these issues is broadly as described in Table 6.

The recent increase in new connections for irrigation indicate the farming sector is willing to invest and create new load points and OtagoNet responds to this through its network development and reliability planning.

Major consumers have significant impact on network operations and asset management priorities. Significant single loads are::

 Oceana Gold‘s 23 MVA of load on the

Ranfurly substation requires a 66kV line,

large dual rated 33/66kV step-up transformers and two heavy 33kV lines from the Naseby GXP. [Public announcements

have been made that this mine is due for closure circa 2017 but confirmation is yet to be received by OtagoNet].

 TrustPower‘s 12.25MW generation

station also requires the 66kV supply at Ranfurly for an embedded connection to Oceana Gold.

 Pioneer Generation‘s Falls Dam power

station requires enhanced 33kV line regulation and arrangements at the Oturehua substation.

 PPCS Finegand‘s 7MVA of load

required a dual 33kV line to provide the required security to it and customers on three downstream zone substations.

 Fonterra‘s Stirling cheese plant has

33kV switching between two supplies to provide fast recovery of power supply in the event of a fault on one line.

Oceana Gold’s 66kV line upgrade

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Asset Management Plan