Friday 8th February 2019
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National grid operator Transpower is being challenged to seek further efficiencies so that it can complete almost $90 million of work in coming years it may otherwise defer due to potential shortages of skilled contractors.
The state-owned transmission company is seeking regulatory approval for its maintenance and upgrade programme for the five years starting April 2020.
Its proposal, lodged with the Commerce Commission in November, included deferral of $58 million of base capital expenditure during the period and $29 million of maintenance operating expenditure.
Most of the capex reduction is due to increased volumes of lines, or conductors, needing replacement during the coming five years, and more of that work having to be pushed into the “less optimal” spring and autumn months to get it done.
Transpower said it will be looking for ways to improve its planning and delivery to allow a “greater throughput of works” during its next regulatory control period – RCP3 - but the Commerce Commission is concerned.
Transpower is forecasting a considerable jump in asset replacement work during the 10 years from 2025 – much of that also due to conductor replacement.
“Deliverability is already expected to be a constraint in RCP3, and is expected to continue to be an issue going forward,” the commission said in a 142-page consultation paper for industry issued this week.
“If Transpower does not have the capability to deliver upon this work, deferral may produce an undesirable change in the risk profile of the asset base. In this context, maintaining an available workforce and specialist skills base might be prudent.”
Transpower operates about 11,000 kilometres of high-voltage lines and 170 substations linking the country’s power stations with major industry and local network companies. Its revenues are set by the Commerce Commission.
Transpower has been working hard to contain costs and expects gains made last year will deliver about $30 million of operating savings during the coming regulatory period. It has also been adopting new technology and smarter planning to reduce its spending on towers, lines and transformers that consumers will be left paying for over 30 or more years.
But an expected increase in demand from electrification of transport and industry means the current network – much of it built in the two decades to 1980 – will have to be replaced in coming years.
Transpower flagged the issue – and the challenge of getting and keeping sufficient line mechanics and protection engineers to do the work - in consultations with industry last year.
Customers were keen to see the firm build up its workforce capacity so Transpower reinstated about $7 million of the $65 million of capex it had initially indicated may have to be deferred.
It says line renewal is a strategic priority and it intends to maintain investment and capability to ensure it is “well set up for delivery” beyond 2025.
But independent verifiers Synergy Economic Consulting and GHD Advisory were also wary.
While they felt Transpower had taken a sound approach in testing the deliverability of its work programme, they said the company should be targeting greater efficiency gains to get past the potential constraints in both its capex and maintenance programmes.
“We believe this is most important, given the delivery challenges Transpower may have to address in RCP4 and RCP5 due to the anticipated significantly higher work volumes in re-conductoring and tower painting.
“The increase in RCP3 maintenance is largely due to work that has been previously deferred and is now considered necessary to support RCP4 and RCP5 activities,” they noted.
Transpower is projecting a 7 percent increase in capex – excluding major projects - to almost $1.34 billion for the next five years. Another $178 million of major projects, which Transpower may need to get separate approvals for, could push the total capex bill to $1.52 billion.
But underpinning the commission’s focus is Transpower’s indication that its total capex requirement could rise to about $1.8 billion in the following five years and to $2.7 billion in the five years from 2030.
Given that outlook, the commission said improving the firm’s asset health and criticality modelling should be a top priority for Transpower during the next five years.
While it was encouraged by the progress Transpower is making in the use of those tools, it noted that was still inconsistent across some asset classes. It has suggested seeking independent verification during the next regulatory period to ensure that work stays on track.
“Transpower should have a continuous focus on improving its asset health models and criticality understanding to better inform its expenditure forecasts and investment decision-making processes,” the commission said.
“By the end of the RCP3 period this aspect of the asset management practice should be well-developed.”
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