Auditor-General's overview

My staff audited how well Transpower New Zealand Limited (Transpower) is managing risks to the transmission system. We wanted to establish whether the owner and operator of the national electricity grid (the grid) understood well the capacity constraints facing the grid and the risks posed by the condition of the grid assets, and was using this understanding to better maintain and invest in the grid.

In 1997, Transpower decided to minimise spending on the grid and renewing assets (an approach known internally as the glide path). It thought that distributed generation (electricity generated close to where it is used) would increase and reduce the need to expand and maintain the grid.

By 2003, it had become clear that the glide path was unsustainable. Many of the grid assets were approaching the end of their useful life, and were required to deliver more power for a growing economy and population. Transpower identified that the grid backbone was nearing its capacity and that investment was needed in many other parts of the grid. Transpower made the strategic decision to focus at this time on increasing the capacity of the grid, and began a programme to advance significant investment in capacity. This programme is under way. It includes work on the Cook Strait links, the North Island grid upgrade, and the North Auckland and Northland project.

In 2008, Transpower turned its attention to the necessary replacement and refurbishment of the ageing grid assets.

In carrying out this audit, we set out to answer the following question: How well is Transpower managing risk to the grid to reduce the chances of:

• power failure in the short term; and
• adopting an inadequate or excessive investment strategy for the medium to long term?

The chances of power failure in the short term

Following the glide path, the grid became increasingly stressed and less reliable. Many of the grid assets are approaching the end of their useful life. Also, as the country's population and economy grow, these ageing assets must deliver more electricity. The grid's core network design and Transpower's contingency planning arrangements mean that Transpower is well placed to reduce the likelihood of power failure and to restore supply after a power failure. My staff found that Transpower solves problems well and fixes many day-to-day problems with the grid as they occur. Transpower has put in place robust project, technical, and commercial governance to oversee complex projects.

The chances of Transpower adopting an inadequate or excessive investment strategy for the medium to long term

Transpower lacks asset information available in the way that a modern asset management system would provide to fully inform an investment strategy for the medium to long term. It has accumulated much data about its assets, their condition, and likely failure profile, but this data is in different systems and is recorded in different formats. For example, it is difficult to form an integrated view of risk throughout a fleet of assets or group of assets at a particular site to help Transpower make decisions. There is no prioritising of risk between asset management plans. It is not possible to establish where the highest risk is and, therefore, which assets should be targeted first. This is especially important given the extent of the replacing and refurbishing work required.

Transpower has recognised this. It has begun a five-year programme to improve how it manages risks to assets. Its Asset Risk Management Journey Plan – Strategic Plan 2010-2013 guides this work.

Transpower has begun a project to buy, install, populate and deploy a modern asset management system. Until this programme has been fully implemented, no-one can be sure how well Transpower is managing risk to the grid to reduce the chances of having an inadequate or excessive investment strategy for the medium to long term.

In February 2011, Transpower produced a unified long-term strategy. Transmission Tomorrow describes the key strategies (to improve grid performance, to improve system performance, and to improve reliability and resilience) that Transpower will apply to provide the increasing services the grid must provide. I consider that Transmission Tomorrow provides a sound basis to guide the grid's future development.

Transpower is taking steps to improve its asset and risk management. I urge Transpower to continue implementing Transmission Tomorrow, and the asset and risk-related strategies, plans, systems and processes that will be required to support it.

I thank Transpower and Commerce Commission staff and our expert advisor for their help and co-operation during our audit.

Lyn Provost
Controller and Auditor-General

28 September 2011