BR04 SERVICE PERFORMANCE MEASURES

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1 SERVICE PERFORMANCE MEASURES 1 October 2013

2 C O P Y R I G H T 2013 T R A N S P O W E R N E W Z E A L A N D L I M I T E D. A L L R I G H T S R E S E R V E D This document is protected by copyright vested in Transpower New Zealand Limited ( Transpower ). No part of the document may be reproduced or transmitted in any form by any means including, without limitation, electronic, photocopying, recording or otherwise, without the prior written permission of Transpower. No information embodied in the documents which is not already in the public domain shall be communicated in any manner whatsoever to any third party without the prior written consent of Transpower. Any breach of the above obligations may be restrained by legal proceedings seeking remedies including injunctions, damages and costs. PAGE 2 OF 64

3 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION Purpose Context Structure BACKGROUND Rationale for our Performance Measures Consultation Approach Customer Views Overview of our Service Performance Measures Regulatory Requirements Future Development of Measures and Targets GRID PERFORMANCE MEASURES Introduction GP1: Number of Unplanned Interruptions GP2: Unplanned Interruptions Average Duration GP3: P90 Duration of Unplanned Interruptions ASSET PERFORMANCE MEASURES AND TARGETS Introduction AP1: HVDC Availability AP2: HVAC Availability OTHER PERFORMANCE MEASURES Rationale OM1 to OM3: Information Provision during Unplanned Interruptions OM4: Planned Outage Restoration Time OM5: Time on N-security OM6: Number of Momentary Interruptions INCENTIVE REGIME Introduction Summary of Incentive Regime Comparisons with Historic Performance Test Against Customer Impact LINKS WITH OUR RCP2 PROPOSAL Forecast Expenditures Asset Risk Management Performance-Based Interventions APPENDIX A: GRID PERFORMANCE MEASURES DEFINITIONS AND APPROACH TO SETTING TARGETS PAGE 3 OF 64

4 8.1. Definition of Unplanned Interruption Definition of Duration Grid Performance Measure Definition Issues Point of Service (POS) Categories Grid Performance Targets APPENDIX B: ASSET PERFORMANCE MEASURES DEFINITIONS AND APPROACH TO SETTING TARGETS HVDC Availability (AP1) HVAC Availability for Selected Circuits (AP2) APPENDIX C: TIME ON N-SECURITY Our Approach to Reporting Time on N-Security APPENDIX D: TYPES OF GRID OUTPUT MEASURES IN THE CAPEX IM PAGE 4 OF 64

5 INTRODUCTION EXECUTIVE SUMMARY We have refined and expanded our performance measures and targets from those used previously. The main improvements are: a change in emphasis to measures of the service we provide making our performance measures more meaningful to our customers making our targets forward-looking and reflective of what customers can expect rather than based on historical performance developing targets that reflect customer load criticality. We developed these Service Performance Measures and targets in consultation with customers, taking into account relevant regulatory requirements. 1 Our Service Performance Measures 2 are categorised as: Grid Performance Measures Asset Performance Measures Other Measures. Grid Performance Measures Grid Performance Measures relate to our performance in providing an uninterrupted service. They relate to the number and duration of unplanned supply interruptions. There are three measures within this group: GP1: number of unplanned interruptions GP2: average duration of unplanned interruptions GP3: P90 unplanned interruption duration, which reflects the duration of our longer interruptions. 3 The targets for these measures differ by customer Point of Service (POS) category. All unplanned interruptions greater than one minute in duration that are caused by faults in our network are included. This includes events caused by extreme weather or environmental conditions. We will report a separate measure for unplanned interruptions of less than one minute. Asset Performance Measures Asset Performance Measures reflect the impact of our asset availability on the electricity market. Asset availability due to both planned and unplanned outages affects energy flows and consequently wholesale electricity prices. The measures focus on transmission circuits which, if unavailable, have the greatest potential impact on energy flows by creating transmission constraints or increasing system losses. There are two measures within this group: AP1: energy availability of HVDC circuits As specified in the Commerce Commission Capital Expenditure Input Methodology Determination (Capex IM). The Grid and Asset Performance Measures are our proposed Grid Output Measures as defined in the Capex IM. Although the Other Measures are not Grid Output Measures, we have included them in our Service Performance Measures as they reflect aspects of our service which are important to our customers. GP3 is based on a derived duration that exceeds 90% of interruption durations. PAGE 5 OF 64

6 INTRODUCTION AP2: availability of selected HVAC circuits. Setting Targets Our approach to setting targets for Grid and Asset Performance Measures involves first setting longterm targets and then, if necessary, deriving transitional targets for the RCP2 period. The long-term targets are based on the performance we estimate could be delivered in 2025 given the make-up of the Grid and planned asset management improvements. Other Measures The Other Measures reflect additional aspects of our service that are important to our customers. There are six measures within this group: OM1: time to provide initial information following an unplanned interruption OM2: time to provide updated information following an unplanned interruption OM3: accuracy of notified restoration times following unplanned interruptions OM4: extent that we meet planned outage restoration times OM5: extent to which we place customers on N security 4 OM6: number of unplanned momentary (less than one minute duration) interruptions. These measures are for reporting purposes only, although we have set targets for some. Performance Reporting We plan to report all the Service Performance Measures from July This will ensure our reporting systems are fully operational ahead of RCP2. We are also considering how we can help customers track our performance throughout the year. Incentive Regime The incentive regime will link our performance to a portion of our revenue. It will reward or penalise us depending on our performance against our targets. We have set a target, a cap and collar, and an incentive rate for each Grid and Asset Performance Measure. We propose that the level of revenue at risk be +/- 1% of our total revenue. This is approximately +/- $10 million per year, which will provide a strong incentive for us to improve our performance. 4 Some grid connections are served by a single line or a single transformer and so any one fault leads to an interruption. These are N-security connections. PAGE 6 OF 64

7 INTRODUCTION 1. INTRODUCTION Chapter 1 explains the purpose of this report, provides a brief context for the Service Performance Measures, 5 and describes the structure and content of the remainder of the report PURPOSE This report describes how we will measure our transmission service performance during the Regulatory Control Period from 2015 to 2020 (RCP2). It also describes the targets we have set and the incentive regime that will link our performance to a portion of our revenue CONTEXT We are putting in place a programme of initiatives to improve the way we manage and invest in our assets. As part of this we have developed Service Performance Measures in consultation with customers. We think there are significant benefits from developing measures that better reflect what matters to our customers; this recognises that customers are best placed to define what value means to them. This is a change in emphasis from measures focused on asset performance to measures that reflect the service customers receive. It will help us to target our Capex and Grid Opex to deliver performance that our customers value. We are regulated by the Commerce Commission (Commission) and are subject to a quality incentive mechanism that requires us to measure and report on our quality of service. This includes a mechanism to link a portion of our revenue to reported performance. We have developed an incentive regime, based on some of our new measures. During the process of developing the Service Performance Measures we have consulted widely and openly with our customers. This was initially to establish the aspects of our performance that are important to customers and then to refine our proposed measures, targets and incentive regime. Our discussions with customers are ongoing. While this report sets out our measures and targets for RCP2, we continue to develop our performance measures taking into account customer needs, our asset management improvements, and technology developments STRUCTURE The rest of this report is structured as follows. Background (2) describes the rationale for the Service Performance Measures and our consultation with customers, provides an overview of the measures, and outlines our plans for future development. Grid Performance Measures (3) describes our interruption-based measures and targets. Asset Performance Measures (4) describes our availability measures and targets. Other Performance Measures (5) describes other proposed performance measures. 5 The associated term in the Capex IM is Grid Output Measures. PAGE 7 OF 64

8 INTRODUCTION Incentive Regime (6) describes the incentive rates, caps and collars, and illustrates the impacts the regime would have had on our revenue for recent years. Links with RCP2 Proposal (7) describes how we have used our performance measures to inform our RCP2 expenditure forecasts. Appendices The following four appendices provide further material. Appendix A: Grid Performance Measures Definitions and Approach to Setting Targets Appendix B: Asset Performance Measures Definitions and Approach to Setting Targets Appendix C: Time on N-Security Measure Appendix D: Types of Grid Output Measures in the Capex IM PAGE 8 OF 64

9 BACKGROUND 2. BACKGROUND Chapter 2 explains the rationale for our Service Performance Measures, describes our consultation approach, provides an overview of the measures and regulatory requirements, and outlines our plans for future development RATIONALE FOR OUR PERFORMANCE MEASURES The service customers receive is largely determined by the transmission assets employed to deliver electricity to their connection. The way the Grid is designed and which assets are used already reflects a trade-off between cost and service. The trade-off is made either through customer choice for dedicated customer-funded assets or through regulated investment decision making for the main interconnected Grid and most connection assets. The service customers receive is also determined by how well we manage and maintain our assets and how well we deal with interruptions when they occur. It is our abilities in these areas which our Service Performance Measures seek to reflect. We have developed the measures in consultation with our customers with the aim of making them more reflective of their requirements. To achieve this we sought to make the following improvements. Change the emphasis of our performance targets to focus on the service we provide. Ensure our performance measures are meaningful to customers by reflecting the aspects that matter most to them. Produce forward-looking targets that are based on what customers can expect rather than historic performance. Develop measures and targets that reflect the different categories of customer load or generation at each POS CONSULTATION APPROACH We developed our Service Performance Measures in consultation with customers. This involved a series of meetings, opportunities for written feedback, telephone conferences, and direct discussions. All consultation documents are published on our website. Our first step in developing our measures was to develop an initial proposal and test it with customers. We then refined the measures, targets and incentive regime over three further consultation rounds. Figure 1 below shows the four consultation steps, and the main issues we discussed with customers at each stage. Table 1 provides links to the customer publications. 6 A POS (point of service) means a normally contiguous electrical busbar of a particular voltage at which we have agreed to provide services to one or more transmission customers. PAGE 9 OF 64

10 BACKGROUND Figure 1: Consultation with customers Oct/Nov 2012 March 2013 July 2013 Sept 2013 Initial proposal Revised proposal Categories and targets Availability measures Incentive regime HVAC availablity Planned outage overruns Table 1: Consultation publications Date Oct 2012 Nov 2012 Mar 2013 Mar 2013 Mar 2013 July 2013 July 2013 Document Customer-facing performance measures Spreadsheet of customer categories Revised proposal Summary of feedback and response Spreadsheet of customer categories and targets Summary of feedback (revised proposal) Presentation on availability measures and incentive regime 2.3. CUSTOMER VIEWS Through our discussions and feedback received, customers told us that the most important aspects of our performance are: the ability of the Grid to transmit power without interruption the impact that asset outages can have on the electricity market our communications to customers during unplanned interruptions how often customers are at a greater risk of unplanned interruptions the financial impact of unplanned interruptions power quality issues, such as voltage sags. We have reflected the first four of these priorities in our Service Performance Measures. We will continue to discuss other aspects of our performance with customers with a view to developing our performance measures in the future OVERVIEW OF OUR Our Service Performance Measures are divided into: Grid Performance Measures Asset Performance Measures Other Performance Measures. PAGE 10 OF 64

11 BACKGROUND The Grid and Asset Performance Measures are our proposed Grid Output Measures as defined in the Capex IM. 7 Although the Other Measures are not Grid Output Measures, we have included them as they reflect aspects of our service that are important to our customers. Grid Performance Measures Our Grid Performance Measures are concerned with the most important aspect of Grid performance for most customers: our ability to provide an uninterrupted service. There are three measures: GP1: number of unplanned interruptions GP2: average duration of unplanned interruptions GP3: P90 unplanned interruption duration, which seeks to reflect the duration of our longer interruptions. The targets for the Grid Performance Measures are different depending on the criticality of customer points of service (POS). 8 Asset Performance Measures Our two Asset Performance Measures are availability measures. The availability (or unavailability) of circuits due to both planned and unplanned outages can impact on the cost of meeting electricity demand, and consequently affect electricity market prices. The two measures are focused on the transmission circuits that have the greatest impact: AP1: energy availability of HVDC circuits AP2: availability of selected HVAC circuits. All of our Grid and Asset Performance Measures will be linked to a portion of our revenue. Other Measures The Other Measures reflect other aspects of our service that are important to our customers, including our information provision and communication to customers during unplanned interruptions and our performance in returning assets to service after planned outages. We will also measure the extent to which we place customers at a higher risk of interruptions through reducing their security to N and the number of momentary interruptions customer experience. There are six Other Measures, known as OM1 to OM6. OM1: time to provide initial information following an unplanned interruption OM2: time to provide updated information following an unplanned interruption OM3: accuracy of notified restoration times following unplanned interruptions OM4: extent that we meet planned outage restoration times OM5: extent to which we place customers on N security 9 OM6: number of unplanned momentary (less than one minute duration) interruptions Appendix D includes a description of the different types of Grid Output Measures defined in the CapexIM and explains how our Service Performance Measures align with these. Customers often have more than one POS at which they connect to the Grid, so any one customer may have a number of POSs, potentially in different categories. Some grid connections are served by a single line or a single transformer and so any one fault leads to an interruption. These are N-security connections. PAGE 11 OF 64

12 BACKGROUND The following table lists the Service Performance Measures. Table 2: Service Performance Measures Grid Performance Measures Asset Performance Measures Ref GP1 GP2 GP3 AP1 AP2 Service Performance Measures Number of unplanned interruptions Average duration of unplanned interruptions P90 duration of unplanned interruptions Energy availability of HVDC circuits Availability of selected HVAC circuits Other Measures OM1 Time for initial information provision response to unplanned interruption OM2 OM3 OM4 OM5 OM6 Time to provide update following unplanned interruption Accuracy of restoration estimates following unplanned interruption Planned outage restoration times Time on N-security Number of unplanned momentary interruptions 2.5. REGULATORY REQUIREMENTS The Capex IM includes: details of the measures we should include and the structure of an incentive regime that we may propose the criteria that the Commerce Commission will use in considering the measures and elements of the incentive regime the types of information the Commerce Commission requires us to provide on the performance measures the performance measures or outputs information that we should include in a supporting document to our Integrated Transmission Plan. As part of an incentive regime, the Capex IM requires that we propose targets, caps, collars and incentive rates for one or more revenue-linked Grid Performance Measures and one or more Asset Performance Measures. In preparing this report we have taken these requirements into account FUTURE DEVELOPMENT OF MEASURES AND TARGETS As our customers priorities change and as we gain experience with the framework, we will refine the design of our measures and targets. We continue to develop measures either for reporting during the RCP2 period or for future regulatory periods. Our current development focus is on: refining our reporting on time on N-security investigating power quality measures and momentary interruptions targets considering reporting the financial impact of interruptions on customers improved reporting, especially post-event interruptions. PAGE 12 OF 64

13 BACKGROUND We are establishing a working group with customers to examine how we can develop power quality measures and momentary interruptions targets, and other aspects of our service performance that are important to customers. PAGE 13 OF 64

14 GRID PERFORMANCE MEASURES 3. GRID PERFORMANCE MEASURES 3.1. INTRODUCTION The introduction to chapter 3 provides background to the Grid Performance Measures and targets including the rationale, inclusions and exclusions. It explains our approach to setting the targets. The remainder of chapter 3 then presents the three Grid Performance Measures, GP1, 2 and 3, with their associated targets and provides comparisons with historic performance. Detailed definitions and further details on our approaches to developing the categories and targets are set out in Appendix A RATIONALE These measures are concerned with the most important aspect of Grid performance for most customers the ability of the Grid to transmit electricity without interruption. This aspect of transmission performance is often measured in terms of system-minutes; 10 this was the approach taken in the current regulatory period (RCP1). The system-minutes approach is useful for regulators comparing the performance of transmission providers, but it does not provide a meaningful measure for customers. In addition, one system-minute can mean different things. It can mean a short interruption for a large load, or a long interruption for a smaller load. Our consultation with customers confirmed that the number and duration of interruptions are the most important measures for most customers. These measures are easily understood and are related to customers costs of interruptions. We record every unplanned interruption and its duration. This data informs three measures: The number of unplanned interruptions at each point of service (POS) (GP1). The average duration of unplanned interruptions at each POS (GP2). The duration of long unplanned interruptions. This is based on the P90 duration, which is a derived duration that is greater than 90% of unplanned interruptions (GP3). We have included the two different duration measures to provide an incentive to reduce the duration of all unplanned interruptions, but also to maintain an emphasis on the small number of very long interruptions. We have used these measures and their associated targets to inform our investment, maintenance and operational strategies UNPLANNED INTERRUPTIONS We will include all unplanned interruptions, greater than one minute in duration, that are caused by faults on our network. This includes events caused by extreme weather or environment. Defining these extreme events is not straightforward and they will affect our customers. For these reasons we have decided to include these interruptions. We will report all shorter interruptions (known as momentary interruptions) as a separate measure (see OM6, section 5.5). 10 A system-minute is the amount of electricity transmitted through the Grid over a minute at the time of system peak demand. The peak demand in 2012 was 6917 MW. One system-minute is around 115 MWh. PAGE 14 OF 64

15 GRID PERFORMANCE MEASURES POS CATEGORIES Customers have different requirements and expectations regarding performance, and the relative impact of interruptions can vary significantly among customers. For example, consumers in rural areas might generally expect more interruptions than those in a major city. Some industrial or CBD loads have high economic costs when interrupted. Some loads are critical to other national infrastructure (for example, the oil refinery). In seeking to reflect this we developed categories for customer points of service. We have five different categories for setting targets, which are set out in Table 3. For most load, the categories are based on customers relative criticality. We have assigned three criticalities: high priority, important, and standard. In assigning criticality our aim was to find a pragmatic proxy for the economic impact of interruptions. The criticalities have been based on the types of load served and the number of customers that would be affected by an interruption. They are described in more detail in Appendix A. Generators have their own category. Some Grid connections are served by a single line or a single transformer, so a single fault will lead to an interruption. These N-security connections (either generator or load connections) have their own category with targets that reflect their increased exposure to events. Table 3: POS Categories used for our Service Performance Measures Category Description Number of POS High Priority Important POS which serve very large or essential loads such as the Auckland CBD or the Oil Refinery at Bream Bay. POS that serve key industrial loads, or large numbers of customers such as Kaiwharawhara Standard Those remaining POS that serve demand customers. 78 Generator POS that connect our generation customers. 40 N-security POS that are served by a single line or transformer APPROACH TO SETTING TARGETS The approach we have taken to determine long-term targets includes these considerations: what performance we should be able to deliver given the make-up of the Grid, any committed improvements to the grid, and any expected degradation customer views through our consultation process the costs and feasibility of improvements needed to deliver changes in performance. Generally the long-term targets we have determined using these considerations are an improvement on our current performance, but in some cases they are lower. In these cases we propose a range from the historic performance to the long-term target. In preparation for RCP3 we will test and review our long-term targets, and discuss the targets with customers. PAGE 15 OF 64

16 GRID PERFORMANCE MEASURES GP1 Long-term Performance Targets For most customers 11 to experience a loss of connection at their POS there must be concurrent equipment outages. These concurrent outages happen either when there are multiple equipment failures, or single equipment failures during times when other equipment has been taken out of service for maintenance. Under normal conditions the probability of multiple equipment failures is quite low. The return period 12 for such events can be decades or more. During some extreme environmental conditions (such as widespread snowstorms), the probability is higher. Interruptions to supply at a POS can result from many mechanisms for example: the loss of both supply transformers at the POS the loss of two transmission circuits supplying the POS the loss of a low-voltage or high-voltage bus at the POS failure of a protection or circuit breaker to operate correctly to remove a fault. While interruptions from each of these individual mechanisms has a long-term return period, the cumulative effect of all these interruption mechanisms is such that points of service will experience an interruption on average once every few years. Estimating the return period between interruptions at a point of service is an especially complex exercise. We have used a simplified model to calculate long-term targets for the number of interruptions at points of service. This is outlined in Appendix A. N-Security POS Targets Sites with N-1 or greater security will expect interruptions only once every few years or less. Sites with N-security might expect multiple interruptions per year. This is because the assets that connect customers at N-security points of service have single points of failure that result in an interruption. Customers can generally elect to pay for additional transmission assets that will increase the level of security at the POS. Often it is not economic to do so. Reflecting this, we have used an amended approach to set performance targets for N-security POS. We have considered two issues: the criticality of the POS, and the different components that link the N-security POS to the Grid. To arrive at a performance target for an N-security site, we added the performance target for the POS criticality to performance targets for each of the circuit and busbar components that link the N-security POS to the Grid. This means that each N-security POS has its own individual GP1 target. Our approach to setting these N-security targets and a full list of the N-security targets are given in Appendix A. GP2 and GP3 Long-term Targets The duration of interruptions is largely driven by our operational capabilities. These capabilities include how quickly our operators can assess an event and determine the appropriate response; the time our service providers take to get to site and carry out any necessary repairs; and the location of our spares. Our approach to setting duration targets was to test potential targets with customers, and balance their expectations with performance that is feasible given cost considerations Most customers have N-1 security. Average time between events. PAGE 16 OF 64

17 GRID PERFORMANCE MEASURES RCP2 Targets To assess overall performance we will aggregate the long-term targets across the different load criticality categories. This will provide a long-term view of overall performance and enable us to set targets for regulatory periods. In some cases customers already experience performance equivalent to or better than the long-term targets. In other cases, we will need to make significant improvements. Overall we consider that we have set challenging long-term targets. For RCP2 we have developed transitional targets to bridge gaps between historic performance and the long-term performance targets. This will give us time to adapt our operational practices to meet the new targets. Where a category historic average is already at, or better than, the long-term target, we have set an RCP2 target to maintain that performance. Where we need to make improvements to meet the long-term targets, the RCP2 target represents a transitional target GP1: NUMBER OF UNPLANNED INTERRUPTIONS The GP1 measure is a count of all unplanned interruptions at each POS. We will publish the number of unplanned interruptions at each POS and in each category annually, and include historic performance for comparison GP1 TARGETS Table 4 sets out the long-term targets, the RCP2 targets and historic rates. Our performance in the generation and standard categories is already above the long-term targets; we have set RCP2 targets that maintain our performance. 13 Table 4: Number of unplanned interruption targets Category Long-term target (number) RCP2 target (number) Historic average (7 years to 2012/13) High priority Important Standard Generator N-security RCP2 Target Compared with Historic Performance To provide context for the level of the RCP2 GP1 target, Figure 2 compares this with historic performance for each POS category. 13 The long-term targets for these categories do not imply that we are, at this time, aiming to provide a deteriorating service. We have proposed ranges for these long-term targets and will review these during RCP2, in preparation for RCP3. During this time we will refine our models for estimating long-term performance and discuss any changes to long-term targets with our customers. PAGE 17 OF 64

18 GRID PERFORMANCE MEASURES Figure 2: GP1 performance by POS category 3.3. GP2: UNPLANNED INTERRUPTIONS AVERAGE DURATION GP2 measures the average duration of unplanned interruptions. We will publish GP2 for each POS annually and average duration for each category. Appendix A provides more detail on how these are defined GP2 TARGETS Table 5 sets out the long-term targets, the RCP2 transitional targets, and historic rates. Table 5: Long-term and RCP2 average duration targets by category for GP2 Category Long-term target (minutes) RCP2 target (minutes) Historic rate (7 years to 2012/13) High priority Important Standard Generator N-security GP2 Target Compared with Historic Performance Figure 3 shows historic GP2 performance for each POS category and the RCP2 targets. PAGE 18 OF 64

19 GRID PERFORMANCE MEASURES Figure 3: GP2 (average duration) performance for each POS category 3.4. GP3: P90 DURATION OF UNPLANNED INTERRUPTIONS The GP2 measure reflects our overall performance in restoring service after unplanned interruptions. In contrast, the GP3 measure seeks to reflect the duration of our longer interruptions. It is a derived duration that exceeds 90 per cent of all unplanned interruption durations GP3 TARGETS The following table sets out our P90 interruption duration (GP3) targets during RCP2 and our longterm targets. Targets for each category of POS are set out in the table below. 14 Table 6: Long-term and RCP2 P90 duration targets by category Category Long-term target (minutes) RCP2 target (minutes) Historic rate (7 years to 2012/13) High priority Important Standard Generator N-security The long-term targets for standard and N-security categories do not imply that we are, at this time, aiming to provide a deteriorating service. We have proposed ranges for these long-term targets and will review these during RCP2, in preparation for RCP3. During this time we will refine our models for estimating long-term performance and discuss any changes to long-term targets with our customers. PAGE 19 OF 64

20 GRID PERFORMANCE MEASURES GP3 Target Compared with Historic Performance Figure 4 shows historic GP3 performance for each POS category versus the RCP2 targets. Figure 4: GP3 (P90 duration) performance for each POS category PAGE 20 OF 64

21 ASSET PERFORMANCE MEASURES AND TARGETS 4. ASSET PERFORMANCE MEASURES AND TARGETS 4.1. INTRODUCTION This introduction provides background on the measures including: rationale, an explanation of the measures and our approach to setting the targets. The remainder of chapter 4 presents the Asset Performance Measures, the associated targets, and provides comparisons with historic performance. Further details on these measures and targets are included in Appendix B RATIONALE These measures are concerned with the impact that asset availability can have on electricity flows and consequently on the electricity market. These impacts can affect generators abilities to supply the market, and can influence wholesale market prices. Both planned and unplanned asset outages can lead to increased transmission constraints 15 and system losses 16. However, the impacts vary depending on the circuits concerned. Outages on some circuits can have little or no impact, whereas outages on others can have more significant impacts. The HVDC circuits allow power flows between the North and South Islands. Imbalances between generation and demand generally exist between the islands, requiring transfer to allow economic generation dispatch, which affects electricity prices. For this reason we will include an HVDC availability measure. Some of the HVAC circuits also have the potential to impact constraints and system losses. We have included an availability measure for selected Grid circuits that have significant impacts on either constraints or losses; for example, the 220kV circuits from Haywards to Bunnythorpe through to Whakamaru AVAILABILITY AND ENERGY AVAILABILITY We have historically reported availability for HVAC and HVDC on different bases and will continue to do so. HVAC availability is reported as availability. HVDC is reported as energy availability. The box below sets out the difference between these two measures. Availability means the percentage of time that an asset (or a group of assets) is available for service during a chosen period. Energy availability is a measure of the energy that could have been transmitted except for limitations of capacity due to outages APPROACH TO SETTING TARGETS Our approach to setting targets for both AP1 and AP2 is to assume 100% availability, with adjustments for approved construction outages, efficient preventive maintenance outages and unplanned outages. The availability targets for RCP2 are the same as our long-term targets A transmission constraint is a local limitation in the transmission capacity of the Grid. System losses are the difference between the energy injected into the Grid by generators and the energy delivered to final customers. PAGE 21 OF 64

22 ASSET PERFORMANCE MEASURES AND TARGETS 4.2. AP1: HVDC AVAILABILITY The AP1 HVDC availability measure is the average energy availability of the HVDC Poles 2 and 3. The measure is based on the maximum amount of energy the HVDC link can transfer at full loading for a full year, less the reduction in energy transfer caused by de-rating the pole for equipment outages. 17 Note that this HVDC measure is an energy transfer capability measure rather than a measure of whether the poles are in or out of service AP1 TARGET The target for AP1 will be 98.5% during RCP2. This is based on 100% energy availability, with adjustments to account for: approved construction outages during the period 18 efficient preventive maintenance outages, where efficient means using the minimum amount of planned outage duration to meet the service specifications for all assets making up the circuits (1%) forced outage energy unavailability based on contractual arrangements for Pole 3 (0.5%). These adjustments reflect the contract service specifications for the recent Pole 3 upgrade. 19 Comparison with historic performance The chart below compares the RCP2 target with the HVDC Pole 2 historic availability. There is no historic performance associated with Pole 3 as it was commissioned during The data for the three most recent disclosure years reflects the high number of outages during the construction and commissioning phases of the HVDC upgrade project. Figure 5: Comparison of historic HVDC Pole 2 energy availability with RCP2 target The HVDC link does not operate at full transfer often. However, there are times it is critical to maximise the transfer capacity of the link (eg, extreme hydrological situations in the South Island). The future evolution of the HVDC measure may focus on the actual market effects of de-rating link capacity due to particular equipment outages occurring at a certain time. None are currently planned during RCP2, although this may be revised if stage 3 of the HVDC link upgrade is approved. These are included in Table 23 in Appendix B. PAGE 22 OF 64

23 ASSET PERFORMANCE MEASURES AND TARGETS 4.3. AP2: HVAC AVAILABILITY The HVAC availability measure is the percentage of time that a selected set of 220kV circuits is available during a year. We have selected circuits based on the potential effect outages would have on security constraints or system losses (or both). 20 The selected circuits are listed below. Table 7: Selected circuits for AP2 HVAC availability measure South Island North Island Clyde-Cromwell-Twizel 1 and 2 Ohakuri-Wairakei 1 Manapouri-North Makarewa 1,2 and 3 Te Mihi-Whakamaru 1 North Makarewa-Tiwai 1 and 2 Bunnythorpe-Tokaanu 1 and 2 Clyde-Roxburgh 1 and 2 Rangipo-Tangiwai 1 Ashburton-Timaru-Twizel 1 and 2 Atiamuri-Whakamaru 1 Invercargill- Manapouri 2 Te Mihi-Wairakei 1 Tekapo B-Twizel 1 Pakuranga-Whakamaru 1 and 2 Islington-Tekapo B 1 Ohau B-Twizel 3 Ohau C-Twizel 4 Ashburton-Islington 1 Islington-Livingstone AP2 TARGET The target for HVAC availability will be 99.6% during RCP2. This is calculated as full availability over a year, taking into account: approved construction outages during the period 21 efficient preventive maintenance outages, where efficient means the minimum outage duration required to meet the service specifications for all assets making up the circuits an allowance for corrective maintenance an allowance for forced outage unavailability. Comparison with historic performance The chart below compares the AP2 performance 22 over the last seven years with the RCP2 targets. This comparison shows that we have failed to meet the RCP2 targets over all seven years. During the last seven years we have completed substantial line upgrade projects. These projects contributed some particularly long circuit outages, which have depressed the availability of these selected circuits. We do not expect as many line upgrades during the RCP2 period. For this reason, we have Our approach to selecting these circuits is covered in more detail in Appendix B. The decision to undertake the work and the costs of reduced availability during construction outages has already been considered during our Capex Governance processes. Note that the AP2 performance data is different from HVAC availability data published in previous quality reports as it concerns only the selected AP2 circuits, not all HVAC circuits. PAGE 23 OF 64

24 Availability (%) BR04 ASSET PERFORMANCE MEASURES AND TARGETS set a more challenging AP2 target. If significant line upgrades are approved, we may need to review this target. Figure 6: AP2 HVAC Availability Target compared with historic performance AP2 - HVAC availability AP2 (HVAC) 2006/ / / / / / /13 RCP2 Target PAGE 24 OF 64

25 OTHER PERFORMANCE MEASURES 5. OTHER PERFORMANCE MEASURES Chapter 5 describes our Other Measures. It provides an overview of the measures, and targets if applicable. These measures are not included in our proposed Grid Output Measures RATIONALE The measures outlined in this section reflect aspects of our transmission service that are important to customers. Providing information and communicating to customers during unplanned interruptions (OM1 to OM3). Our performance in returning assets to service within planned timeframes after planned outages (OM4). The extent to which we place customers on N security (OM5). The number of very short unplanned interruptions (less than one minute) in our transmission service (OM6). Although we will set targets for some of these measures, we do not propose to link our performance to revenue as some of them are developmental in nature and we have little or no historical performance information OM1 TO OM3: INFORMATION PROVISION DURING UNPLANNED INTERRUPTIONS We currently communicate with our customers (distributors, large industrials and generators) during unplanned interruptions. Depending on the extent and length of the loss of supply, we also provide public information via our website and the media. Once an interruption occurs, accurate information about the cause and likely restoration time is valuable to customers and may reduce the cost and risk involved. We will introduce three measures to monitor our performance (set out below). We do not yet fully collate this performance information, but recognise the value both to customers and to ourselves in better understanding this aspect of our performance OM1: TIME TO PROVIDE INITIAL INFORMATION FOLLOWING AN INTERRUPTION We will report the time from the unplanned interruption to the initial response call we make to the customers duty person. This initial call will include, as a minimum: which equipment is out of service what we are doing about the fault when we expect to have someone on site and can provide further information. We will set a target of 15 minutes and report the percentage of times we meet this target. The target will be the same for all customer categories. PAGE 25 OF 64

26 OTHER PERFORMANCE MEASURES OM2: TIME TO PROVIDE AN UPDATE (FOR EXTENDED INTERRUPTIONS) We will monitor and report the time taken to make a subsequent update. Most of our interruptions are restored within 30 minutes so this update will not be necessary in the majority of cases, but will provide an incentive for us to communicate with customers who experience longer interruptions. The target for this subsequent update will be 30 minutes after the initial communication OM3: ACCURACY OF RESTORATION INFORMATION We understand that accurate estimates of restoration times are valuable to our customers and we want to improve our performance in this area. Implementing a measure to transparently monitor our performance is the first step. We will not set a target for this measure, as we want to gather information to understand how well we are performing before setting meaningful targets. We expect our performance to be highly variable depending on the causes of unplanned interruptions, and for a long interruption we may need to provide multiple estimates. This measure will be reported as: % of restorations following unplanned interruptions that are met within 10 min of restoration estimates given % of restorations following unplanned interruptions that are met within 20 min of restoration estimates given % of restorations following unplanned interruptions that are met within 30 min of restoration estimates given. Table 8: Targets for measures OM1, OM2 and OM3 Ref Measure Targets OM1 Time for initial information provision response to unplanned interruption 15 min OM2 Time to provide subsequent update following unplanned interruption 30 min 5.3. OM4: PLANNED OUTAGE RESTORATION TIME In our initial proposal to customers we did not include measures around the management of planned outages. We are introducing this measure in response to customer feedback. For generators, planned outage overruns can restrict their ability to supply the market. For load customers, an extension of a planned outage can increase the risk of an unplanned interruption. For parties trading electricity, planned outages can create price movements that they need to manage using costly financial risk management instruments. We recognise that our performance in returning assets to service following planned outages is important. We will report: the percentage of outages for which the actual end time is after the planned end time the percentage of outages for which the actual end time is over 30 min 23 earlier than the planned end time. 23 We require permission to restore assets to service from the System Operator where the actual end time is more than half an hour before the planned end time. PAGE 26 OF 64

27 OTHER PERFORMANCE MEASURES In each case, the planned end time is the end time that is notified at the time the outage begins (that is, once the outage has begun we can notify customers of new end times, but these will not be used as planned end times for the purposes of this measure) OM5: TIME ON N-SECURITY Understanding the risks of non-supply is an important issue for customers. When customers that are usually on N-1 or greater security are on N-security, they are at a greater risk of interruption. However, limiting the time on N-security may limit opportunities for maintenance and other works. Reporting time on N-security allows us to assess, in aggregate and at the POS, one of the main drivers of interruptions. It will enable us to develop greater understanding of how often customers are on N-security and for how long, and how time on N-security influences risk of non-supply. It will also trigger investigations on how to reduce risks of non-supply. We will report: the number of hours a POS was on N-security the percentage of the year that each POS was on N-security. Calculating when a POS is on N-security is not straightforward. We have built a model that makes a good approximation of the time on N-security for each POS. Appendix C provides detail for the time on N-security measure and provides historic data for 2011/ OM6: NUMBER OF MOMENTARY INTERRUPTIONS Our Grid Performance Measures (GP1, 2 and 3) exclude interruptions of less than one minute. The majority of these shorter momentary interruptions are the result of successful auto-reclose operations. 24 For N-security sites, auto-reclose capability minimises the duration of interruptions and is an economic alternative to a much longer interruption. A number of customers disagreed with our proposal to exclude these momentary fluctuations from GP1, GP2 and GP3. We therefore propose to report them separately. We will also look more closely at these interruptions as part of our working group s scope (refer section 2.6). We will report the number of momentary interruptions at each POS, and by POS category. We will not set targets for this measure but will consider doing so in the future. Historic Number of Momentary Interruptions Figure 7 and Figure 8 provide historic data on the number of unplanned momentary interruptions for N-1 and N-security POS respectively. 24 Most protection systems on transmission circuits have an auto-reclose capability. Following the successful clearance of a fault on the transmission line, the protection system will automatically cause the line circuit breakers to close after a short interval to return the transmission circuit to service. PAGE 27 OF 64

28 Number of momentary interruptions Number of momentary interruptions BR04 OTHER PERFORMANCE MEASURES Figure 7: Number of momentary interruptions for N-1 POS Momentary interruptions (less than 1 min duration) 06_07 07_08 08_09 09_10 10_11 11_12 12_13 High priority Important Standard Generator Figure 8: Number of momentary interruptions for N-security POS Momentary interruptions (less than 1 min duration) N-security POS 06_07 07_08 08_09 09_10 10_11 11_12 12_13 PAGE 28 OF 64

29 Penalty Reward BR04 INCENTIVE REGIME 6. INCENTIVE REGIME 6.1. INTRODUCTION We have developed an incentive regime, in line with the Commission s requirements, using the measures outlined in this report. Our incentive regime proposal must include at least two revenue-linked measures: 25 a measure of grid performance an asset performance measure. For each revenue-linked measure, we must propose a target performance level and parameters that define the link between performance and revenue at risk (cap, collar and incentive rate). The way the different aspects of the incentive regime relate to revenue is depicted below. Figure 9: Illustration of Incentive Model Incentive Regime - Cap, Collar, & Target Incentive Collar Incentive Cap Incentive Target Incentive Rate Increasing Performance The rest of chapter 6 provides a summary of the incentive regime and illustrates the impact the regime would have had on our revenue over the last seven years OUR APPROACH TO A PROPOSED INCENTIVE REGIME The following considerations have guided the development of our proposal. The incentive regime should reflect performance that is important to customers. It should be relatively simple and readily understood so that it is more effective at influencing performance. The measures should be designed so that factors we can control can be expected to improve our performance on average over the control period. Transmission service performance can fluctuate significantly year by year: we often face different weather or environmental challenges each year, and our construction and maintenance work programmes can also vary. This may affect our performance and the incentive regime. Nevertheless, the incentive regime should encourage us to improve our performance over the RCP2 period and longer term. 25 This requirement is set out in the Capex Input Methodology Determination. PAGE 29 OF 64

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