Part 4: Asset knowledge, maintenance strategies, and resilience

Managing the assets that distribute electricity.

4.1
In this Part, we consider:

What the three companies know about their assets

4.2
It is important that electricity distribution businesses have up-to-date knowledge of their assets, especially their condition and performance. This is necessary to make informed decisions about whether to inspect, repair, or replace an asset. We do not expect electricity distribution businesses to have information about every asset they own because this would be too costly. However, they need to have comprehensive information on critical assets in their networks and general information on their other assets.

4.3
We expected all electricity distribution businesses to have comprehensive knowledge of:

  • information, such as location and age, and detailed descriptions of critical asset components; and
  • the condition and performance of network assets.

4.4
Electricity distribution businesses also need to continually monitor the information they have to ensure that it remains current and is used to inform asset management decisions.

4.5
We considered the extent of the three companies' information about their network assets. We did not enquire about non-network assets, such as vehicles and office equipment.

4.6
Network asset information is usually held in asset databases and geographic information systems.19 Information about the condition and performance of assets is usually based on inspections.

4.7
The three companies had databases and systems that recorded basic attribute information about their network assets. Each company had age profiles of their major asset categories. However, Waipa had to make assumptions about the age of some assets because the source information was not available. Many entities that own infrastructure assets take this approach.

4.8
Although the three companies reported on the condition of their assets, there were differences in how this information was collected and the extent of reporting. Unison had the most extensive condition information and had analysed many of its asset classes in detail. In comparison, Waipa last completed an asset condition assessment in 2006. Waipa began a further cycle of condition assessments in 2010/11 and it is expected to take eight years. Although the level of detail varied in each company, this is not unreasonable. We expect companies to take account of their specific circumstances when considering what information they collect and hold about their assets.

4.9
Two of the companies told us that they have made changes to improve the accuracy of asset knowledge:

  • Alpine had selected a new enterprise-wide asset and financial management system, which should help Alpine meet its advanced asset management needs. Under this system, condition information will be easier to obtain for individual assets. The system was due to be implemented from April 2017, but it will be some time before the benefits are fully realised. Unison was also investigating the benefits of an enterprise-wide information system.
  • Unison was focusing on improving its knowledge of asset condition. A condition-based risk maintenance analysis technique was being put in place, and will be integrated into a tool called Condition Adjusted Survival Time. This assesses asset condition according to a 10-point scale rather than the less-detailed four-point scale.
  • New technologies are available to assist in condition assessments. Unison introduced sensors and real-time monitoring to be used alongside visual inspections of assets. There is also a new tool that can better estimate the remaining life of wooden poles. We commend the use of these new technologies in assessing asset condition.

4.10
The three companies need to continue to improve their understanding of the condition of main distribution assets. Unison and Alpine are actively planning improvements – on what information is collected and how information is recorded, respectively – to address where their information is not up to date. Waipa is part-way through a condition re-assessment exercise and will need to prioritise this work.

Maintenance and replacement work programmes

4.11
It is important to have maintenance and replacement strategies in place when managing assets. Not replacing assets at the right time might result in an unexpected failure. For an electricity distribution business, this could mean consumers not receiving electricity.

4.12
We expected the three companies to:

  • have clear and defined maintenance strategies that separate planned and unplanned maintenance.20 Differentiating between planned and unplanned maintenance is important because an increasing incidence of unplanned maintenance might indicate that their networks are deteriorating and becoming unreliable;
  • track, manage, and address any maintenance that has been deferred. Poor maintenance work can also affect how effectively an asset operates;
  • have identified a process or criteria to determine when assets should be replaced; and
  • apply consistent asset life policies.

4.13
We also wanted to understand the trends in maintenance and asset replacement expenditure for the three companies and their long- and short-term forecasts for maintenance and asset replacement.

Maintenance and replacement strategies

4.14
Each company had, in its asset management plans, a summarised maintenance strategy that differentiated between planned and unplanned maintenance.

4.15
However, none of the three companies had a complete list of maintenance task procedures for each type of maintenance job. Maintenance task procedures are an important part of best practice asset management. Task procedures, which usually include pictures and photos, show what is to be done, how it is to be done step by step, any health and safety and other risks, and what is to be documented.

4.16
None of the three companies had identified any significant maintenance that has been deferred. Instead, the three companies told us that they have carried over some maintenance projects from scheduled years because of the availability of contracting staff and the need for reassessments.

4.17
The three companies have processes and criteria to determine whether an asset should be replaced and to prioritise replacements. Although the sophistication and detail of the criteria varied between the three companies, the core considerations were age, performance, condition, safety, risk, and cost.

4.18
Unison has invested $28 million over five years into its Smart Grid Initiative. The tools and processes, such as sensors and asset condition monitoring, enable improved monitoring of its network. Unison is also providing evidence to better determine the timing of maintenance and replacements. Unison's 2016-26 Asset Management Plan identifies expected benefits of more than $18 million a year from 2020/21. Much of this comes from a delay in replacing equipment compared to an age-based replacement programme.

4.19
Of these considerations, age is becoming less of a factor in decisions about replacements. However, when using other factors to make a decision, some care needs to be taken to accurately estimate the timing of replacements.

4.20
Alpine and Waipa told us that robust, detailed, and up-to-date condition monitoring and risk assessments are still under way. Therefore, replacement forecasts based on those factors have a degree of uncertainty.

Maintenance and replacement expenditure trends

4.21
The three companies have maintained or decreased their operational and maintenance budgets for the period to 2025. None of the three companies forecast maintenance beyond the 10-year regulatory planning period.

4.22
The replacement forecasts to 2025 differed between the three companies. Waipa plans the same level of replacement in real-dollar terms. Alpine and Unison have more variability and have planned for particular replacement projects in certain years. However, none of the three companies have replacement forecasts that extend beyond 10 years.

4.23
We were surprised that maintenance and replacement forecasts did not extend beyond a 10-year period. Effective asset management planning includes life-cycle management strategies for all significant assets. Those strategies include maintenance and replacement estimates and general trends. Estimates should extend to the end of the projected lives of assets, which can be 50 years or more. Local authorities are now required to prepare infrastructure strategies that include projections for at least 30 years.

4.24
We were also surprised that there are no projected increases for maintenance and replacement in the forecasts. Companies told us that generally assets are lasting longer than the standard useful lives assigned to them. This might be true, but as these assets age they could require more maintenance. Networks are also expanding to accommodate new connections and construction projects. We question whether the maintenance associated with network growth is adequately factored into forecasts, especially without robust, detailed, and up-to-date condition monitoring.

4.25
In our view, life-cycle management strategies need to be forecast for more than 10 years. Life-cycle management is an important part of asset management, especially for long-life assets like those owned by electricity distribution businesses. This involves understanding the processes necessary to maintain the assets through their useful life and to dispose of, or replace, the asset at the end of their life.

4.26
Once an entity understands the maintenance and replacement needs, and how much they will cost throughout the asset life-cycle, it can make better decisions about managing and funding assets. None of the three companies are expecting a significant increase in maintenance and replacement costs in the 10 years to 2025/26. This is consistent with the expectations of electricity distribution businesses as a whole.

4.27
Figure 7 shows the forecast maintenance and replacement expenditure in constant dollars21 for the core business of all electricity distribution businesses from 2016/17 to 2025/26. Replacement expenditure is expected to increase, and electricity distribution businesses expect to spend about 10% more in 2025/26 compared with 2016/17. Forecast maintenance costs are generally unchanged.

Figure 7
Forecast maintenance and replacement expenditure in constant dollars

Figure 7 Forecast maintenance and replacement expenditure in constant dollars.

4.28
We do not know whether the three companies, or electricity distribution businesses as a whole, could reach a "peak" of replacing assets after 2025/26.

4.29
The three companies need to do more work to understand the potential maintenance and replacement needs and costs for a longer time period. With this information, boards can make more informed decisions about asset management and associated funding.

Asset life policies

4.30
Based on the replacement forecasts, we found that, for many asset categories, assets are expected to last longer than the useful lives they are assigned for financial reporting and regulatory purposes. In our view, useful lives in asset management plans, and those assigned for financial reporting and regulatory purposes, need to reflect how long assets are actually being used. They should not differ.

4.31
There are also differences between the useful lives used for financial reporting and regulatory purposes.22 For the three companies:

  • Alpine disclosed a useful life range of three to 100 years for its distribution system for financial reporting purposes. We estimated the average useful life recognised in 2015/16 was 48 years. This is the same as Alpine's regulatory weighted average useful life.
  • Unison disclosed a useful life range of 10 to 80 years, and we estimated an average useful life in 2015/16 of 57 years. Unison's regulatory weighted average useful life was 52 years.
  • Waipa sets its useful life at 40 years for financial reporting purposes, which compares with a regulatory weighted average useful life of 49 years.

4.32
We would not expect differences between the useful lives prepared for financial reporting and regulatory purposes. The useful lives recorded in the three companies' systems also need to match what companies are experiencing in practice.

4.33
The three companies need to review their asset life policies and confirm that they are consistent with what they are experiencing in practice. Although asset life information may be becoming less important when making replacement decisions, more reliable performance and condition information is still being developed. As long as the three companies use asset age as a factor when making replacement decisions, accurate asset life information is needed. This will enable the companies to replace assets when they are needed.

Resilience of networks

4.34
The main purpose of electricity distribution businesses is to manage their networks so they are capable of providing a reliable supply of electricity to their consumers. Electricity distribution businesses must ensure that their networks are resilient, so unexpected events and natural disasters do not cause communities to lose electricity supply for an unacceptably long time.

4.35
Electricity distribution businesses also need to understand current demand and accurately predict future demand to ensure that their networks can supply the electricity needed.

4.36
We looked at how the three companies ensured that their networks were resilient. We expected the three companies to:

  • have plans in place to ensure that their networks were resilient; and
  • use systems to ensure that their networks can meet current demand and predict future demand.

Plans to manage network resilience

4.37
The three companies have plans to manage network resilience, with a focus on improving their resilience to natural disasters. These include strengthening buildings and holding off-site back-ups of their systems.

4.38
When we carried out our fieldwork, the three companies had recently experienced wind damage after storms. Resilience measures were adopted in response to this, including more vegetation control to reduce damage to overhead lines in high winds. Alpine and Waipa have significantly increased their budgets for vegetation control. Alpine also told us that it has put in place a policy that prohibits the use of soft wood poles for any new overhead line construction. Alpine has also started a programme to replace soft wood poles carrying high-voltage lines.

4.39
There is a balance between improving resilience and managing costs. A small increase in resilience may incur high costs, leading to increased line charges. The three companies are aware of the balance that is needed between resilience, risk, and cost. They are increasingly using analytical techniques to better manage this balance.

Demand management

4.40
Managing existing demands is a core activity for managing line networks. For example, ripple control allows electricity distribution businesses to switch off supply to consumers' hot water cylinders or irrigators to control demand.

4.41
The three companies have strategies to manage existing electricity demand and predict future demand. To predict demand, the three companies look to the overall yearly increases in demand as well as predicted peak demand. The three companies have estimated their future demand, but the depth and sophistication of assumptions and analysis varied between them. Of the three companies, Unison carried out the most extensive analysis.

4.42
Unison has introduced a load forecast tool that uses historical peak demands and key economic indicators to create a 20-year forecast. Unison also plans to introduce more nuanced approaches to analyse trends, such as segmental analysis of demographic data and more detailed long-term weather predictive data. Unison expects to use these initiatives to better manage asset performance and improve resilience.

20: Planned maintenance is any maintenance work to an asset or item of equipment that is scheduled regularly. Unplanned maintenance is corrective work required in the short term to restore an asset to working condition.

21: By "constant dollars", we mean that the amounts are not inflation-adjusted.

22: For financial reporting purposes, useful lives of asset classes are usually expressed as a range (for example, between 50 and 60 years). By further analysing the financial statements, we can estimate the total useful life. The Determination requires electricity distribution businesses to disclose asset life information.