Asset Risk Management Journey Plan STRATEGIC PLAN 2010-2013 Transpower New Zealand Limited April 2011
TABLE OF CONTENTS EXECUTIVE SUMMARY... 3 1. PURPOSE... 4 2. OVERVIEW OF TRANSPOWER S RISK MANAGEMENT PROCESSES... 4 3. ASSET MANAGEMENT AND RISK... 5 3.1 Expectations for Asset Risk Management within the PAS 55 framework... 5 3.2 Current state... 6 3.3 Summary of Proposed Improvements... 6 4. PUBLIC SAFETY MANAGEMENT SYSTEM... 7 4.1 Requirements of NZS7901:2008... 7 4.2 Summary of Proposed Approach... 8 5. PLANNED ASSET RISK MANAGEMENT JOURNEY PLAN... 9 Page 2
EXECUTIVE SUMMARY The adoption of PAS 55 and the requirement to implement a public safety management system provide an opportunity for the formal integration of Transpower s approaches to asset, risk and safety management. These functional areas are inherently linked and formal integration will drive improvements in capability in all three areas, and result in a comprehensive asset-risk information base which can be used to better inform decision making. PAS 55 is a framework for asset management which includes requirements for asset-level risk information. Transpower already holds asset risk information in a number of disparate systems and in varying degrees of detail. The programme through which alignment with PAS 55 will be achieved will consolidate the information in these systems to provide a comprehensive view of asset risk. Transpower is required to implement an asset based public safety management system, as a result of amendments to section 61A of the Electricity Act. These amendments require Transpower to more formally consider and document asset risk from a public safety risk and risk to public property perspective. Transpower can achieve this through compliance with NZS7901:2008. Separately Transpower has identified the need to further strengthen its risk management practices across the company. Risk management policies and procedures have been in place since 2004, and the last 24 months has seen a marked improvement in risk management practices across the company. There is still room for improvement and as Transpower embarks on its asset management programme, there is an opportunity to reinforce the risk management practices in that area. Transpower intends to take a coordinated approach to the implementation of these related pieces of work to ensure that the outputs are comprehensive separately, and that combined, they serve to provide a sound basis for investment decision making. The outcome will have the following characteristics: 1. Aligned with and complementary to Transpower Risk Management Policy, PAS 55 and NZS7901:2008. 2. Quantify the risks across the asset base and identify methodologies for assessing different asset management strategies for how these risks can be managed. 3. Establish the context and risk criteria for investment / operational strategies thus linking network investment decisions to the risk framework. 4. Use risk analysis to justify different risk management options and decisions for different types and size of projects, including risks associated with deferring projects. There are a number of actions to be undertaken over the next 3 years. Key target dates described in this journey plan, include: NZS7901:2008 Compliance Accreditation of Transpower s Asset based public safety management system by March 2012; and PAS 55 External Certification of Transpower s Asset Management Systems by March 2013. Page 3
1. PURPOSE This document summarises Transpower s existing asset risk management approach and articulates a high-level plan under which Transpower will enhance its asset risk management framework so that it is aligned with the internationally recognised Publicly Available Specification, PAS 55-1 2008 1, and ensures compliance with NZS7901:2008 2. The document is structured as follows: Section 2: Outlines Transpower s current risk management processes. Section 3: Describes the asset risk management framework within PAS 55. Section 4: Section 5: Describes the requirements of the Public Safety Management System. Outlines the asset risk management journey plan. 2. OVERVIEW OF TRANSPOWER S RISK MANAGEMENT PROCESSES Transpower s existing Risk Management Policy 3 sets out the basis for the management of risk throughout its activities. Transpower recognises that managing risk is an essential and critical component of business. Effective risk management enables Transpower to better deliver against its strategic objectives and operational performance targets, protect and enhance its reputation, and improve both safety performance and power system reliability. Transpower has a well established and documented set of risk management policies, procedures, governance structure, and reporting arrangements for the management of its risks. These arrangements, aligned with ISO31000:2009, provide an effective basis for identifying, managing and reporting on all risks across the company. Key components of Transpower s risk management system include: Risk Management Policy a standardised approach to risk across all aspects of the company and the services it delivers. Transpower Risk Register includes all of the risks from across the company, including asset risks at a high level. The risk register is made available to the Board. Transpower cross-functional Management Risk Committee this committee considers all company risks, and specifically those risks with the greatest consequences for the company. The majority of the discussion is on asset and network risk as this tends to represent the greatest risk to the company (as a core component of the services provided). An output of this Committee is the Top 10 risks report which is presented to the Board monthly. Transpower Board sub-committee Network Risk Committee this committee focuses on network and asset risk and receives presentations from management on these risks and how they are being managed. 1 2 3 BSI, PAS 55-1 2008: Asset Management- Specification for the Optimised Management of Physical Assets. New Zealand Standard, NZS7901:2008: Electricity and Gas Industries Safety Management Systems for Public Safety. CP.B.CS.001, Issue 5, Dec. 2009 Page 4
The approach to risk management has matured over time, and that maturity is evident in technical areas where there has been a noticeable move from implicit to explicit consideration of risk. Areas for improvement have been identified and are included in section 3.3. 3. ASSET MANAGEMENT AND RISK Transpower is embarking on a five year programme 4 to improve its Asset Management System. The overall Asset Management Programme includes the adoption of PAS 55 as a guide to good asset management practices. PAS 55 is the most broadly recognised guide to asset management internationally, and electricity utility organisations around the world are increasingly adopting the standard as the basis for their asset management framework. 3.1 Expectations for Asset Risk Management within the PAS 55 framework Risk management is an important foundation for proactive asset management. The overall purpose of risk management is to: understand the cause, effect, and likelihood of adverse events occurring; optimally manage such risks to an acceptable level; and to provide an audit trail for management of risks. Under PAS 55, an organisation should establish, implement and maintain documented processes to identify, evaluate and control asset-related and asset management-related risks. This will include the identification and implementation of necessary control measures throughout the life cycles of the assets consistent with the organisation s operating experience and its capabilities (relating to risk control measures). This approach is aligned with ISO31000:2009. Typical asset or network risks relevant to an electricity utility include: safety risks, for workers or members of the public; service failure risks, leading to disruption and economic loss to end users; physical failure risks, such as functional failure, malicious damage or terrorist action; operational risks, including the control of the asset and human factors; natural environment events (storm, floods, etc., including the likely effects of climate change); factors outside of the utilities control, such as failures in externally supplied materials and/or services; and stakeholder/reputational risks, such as failure to meet performance requirements. An effective methodology for risk management should be proportionate to the types and level of risk under consideration and be implemented in such a way as to be proactive rather than reactive. The methodology should include the ability to assess how risks change in magnitude and likelihood over time. The identification and assessment of risks should consider the probability of credible events and their consequences. Once classified and identified those risks may be better avoided, eliminated or controlled by asset management techniques and processes. 4 This period includes the time required to fully implement new information systems infrastructure to support asset management. Page 5
The results of risk assessments and the effects of risk control measures should provide input into: an overall asset management strategy and objectives; asset management plans; plans for adequate resources including staffing levels; training and competency material; specifications for assets life cycle activities; and the organisation s overall risk management framework. 3.2 Current state Transpower has a range of tools and techniques that it applies to the planning, augmentation, refurbishment, condition monitoring, and failure analysis of its existing transmission network, including: Load and generation forecasting, transmission security forecasting and contingency analysis. Static and dynamic voltage stability assessment. Power system dynamic stability modelling analysis, including feedback from real grid events using phasor measurements. Condition assessment specific groups of assets have their condition assessed as a means of determining requirements for specific maintenance or replacement activities (e.g. towers). This condition rating is a form of risk assessment. Connection Risk Assessment this programme of work is intended as a mechanism of identifying and prioritising work on connection assets in direct consultation with customers. From time to time other risk assessment programmes have also been run, for example, overhead earthwires crossing busbars, examination of substation bunds, etc. Earthing design for lines and substations uses a probabilistic risk assessment methodology that is broadly consistent with the EEA Guide to Power System Earthing Practice. Incident Reporting following each power system event a detailed analysis of the event and its root cause is undertaken. This information is included in a formal incident report and the consolidated data from these reports is included in the annual Quality Report. Information contained in here is useful as an indicator of areas of risk. These tools all contribute to the wealth of asset risk information which is already available. However, it is noted that at present this information is contained in disparate systems. It can be difficult to form an integrated view of risk across a fleet of assets, or across a group of assets at a particular site, and this affects asset management decision making. An independent review of Transpower s asset management conducted by BW Consulting 5 identified the need to develop a more detailed risk assessment at the asset level. Transpower acknowledges that formal risk methodologies are required for a range of specific asset classes and situations, to better inform investment decision making and to meet PAS 55 requirements. 3.3 Summary of Proposed Improvements The next steps in improving risk management capability across the organisation include: 5 Review of Transpower s Asset Management Strategies and Plans, BW Consulting, December 2010 Page 6
improving the assessment criteria and indicators in the risk assessment matrix to provide the appropriate level of granularity for all types of risk; developing and documenting formal risk models for specific asset classes and situations; formal inclusion of risk assessment criteria in the investment prioritisation and decision processes of the organisation; extension of risk management training to improve quality and consistency across the organisation; development of a systematic approach to updating and reporting on risks, through leveraging existing tools and systems outside the present corporate risk management system. alignment of risk based models and tools, and consolidation of the asset risk information is a key step in improving asset risk quantification and informing overall asset risk assessment and investment decision making. 4. PUBLIC SAFETY MANAGEMENT SYSTEM The Electricity Amendment Act 2006 amended section 61A of the Electricity Act 1992 and requires all electricity utilities to implement and maintain a safety management system that demonstrates that all practicable steps are being taken to prevent the electricity supply system from presenting a significant risk of: a) serious harm to any member of the public; or b) significant damage to property, other than Transpower s. Transpower is required to satisfy this legislative requirement through the implementation of a public safety management system (PSMS) by early 2012. The Electricity (Safety) Regulations 2010, regulation 48, further states that every safety management system must comply with either NZS7901:2008 or regulations 49 and 50. Transpower was a nominating organisation and committee member for the preparation of NZS7901:2008 which offers guidance on safety management systems. 4.1 Requirements of NZS7901:2008 NZS7901:2008 specifies the principles, and provides guidance on the design, implementation, and operation of a safety management system intended to prevent serious harm to any member of the public or significant damage to property. Unlike previous Safety Standards, NZS7901:2008 has a strongly asset management orientation to its contents and obligations on complying entities. The standard applies to all electricity generation, transmission, and distribution networks above 10 MVA/MW, and gas distribution entities. The standard takes a hazard identification and significant hazard control approach. It requires hazards associated with the systems used for electricity transmission to be systematically identified and assessed, so that those that present a risk of causing serious harm or significant damage (significant hazards) are identified. All practical steps, in proportion to the assessed risk level, must then be taken to eliminate, isolate, or minimise each significant hazard throughout the life cycle of the asset. Page 7
The standard requires that Transpower prepare and implement a public safety management system (PSMS) which will assist it to: comply with the legislation; demonstrate compliance to others; monitor the effectiveness of the PSMS; and implement a continuous improvement process. 4.2 Summary of Proposed Approach The PSMS will contain a documented description of all assets covered by the NZS7901:2008 including: geographical location and spread; length / size / materials / operating conditions; energy supply, control and isolation points; references to suitable asset management plans, maps, drawings, diagrams, lists, and registers; activities (current and planned) that are covered by the PSMS; and the operating parameters, sufficiently detailed to allow assessment of the risks of serious harm to members of the public or significant damage to property. NZS7901:2008 describes the processes involved with hazard management and risk assessment, and these are not dissimilar to ISO31000:2009. They are iterative and are expected to be conducted at all stages throughout the lifecycle of the assets. To verify compliance with the standard, Transpower will be required to submit the PSMS to performance monitoring. This will be conducted through audit, measurement of key performance indicators, review of incidents, and periodic reviews of the PSMS. The first accredited audit is required to be complete by March 2012. The Electricity Engineers Association NZ Inc. (EEA) and the Gas Association of New Zealand Inc. (GANZ) have developed and recently issued draft guidelines including a handbook and toolkit to assist entities to develop and implement public safety management systems in accordance with NZS7901:2008. The EEA/GANZ handbook and toolkit provide useful details, examples, and pro-forma s that can be used in the development of a complying PSMS. The handbook is based on presentations and considerations at various EEA workshops held during 2010, and is intended to be equally applicable to both the electricity and gas industries. Transpower intends to use and apply the EEA handbook and toolkit material on its journey towards the full implementation of a complying safety management plan. Page 8
5. PLANNED ASSET RISK MANAGEMENT JOURNEY PLAN Transpower s overall objective is to improve its asset management capabilities to a point where it can confidently seek accreditation with PAS 55 by March 2013. This improvement in asset management will incorporate a complementary improvement in its approach to risk management. In parallel with this, Transpower will develop and implement its PSMS to be NZS7901:2008 compliant by March 2012. Transpower plans to establish a dedicated project team to deliver systems and process improvements that will: 1. aligned with and complement Transpower s Risk Management Policy, PAS 55 and NZS7901:2008; 2. Identify and quantify risks across the asset base; 3. adopt effective methodologies for assessing asset management strategies to control identified risks; 4. establish and embed context and risk criteria for investment / operational strategies thus explicitly linking network investment decisions to the risk framework; and 5. use risk analysis to justify different risk management options and decisions for different types and size of projects, including risks associated with deferring projects. The approach which will be taken is as follows: Define the asset level that risks will be recorded to (granularity). Identify any additional asset risk information (such as asset criticality, loss events, etc) to be captured in addition to standard asset information and standard risk information. Refine the risk assessment matrix to include asset risk consequences descriptors. Develop the process for capturing and maintaining the asset risk information, including identifying the existing sources of information (e.g. condition assessment). Identify the asset risk information which needs to be represented in the company-wide risk register (and how this will be populated). These steps will be progressed as a key part of the asset management system implementation for consistency. This overall approach will inform and be informed iteratively by a proof of concept asset risk identification work stream which will occur concurrently. The proof of concept will select an asset classification group e.g. transmission lines, and develop risk statements at a initially high level. It will become more granular at each revision, and identify and populate other asset risk information from known sources e.g. incident records which describe consequences and costs. The resulting information will be compared with the developing asset risk framework and further improvements in the framework will be generated. Once the framework has been defined to meet, at a minimum, the requirements of PAS 55 and NZS7901:2008, it will be deployed company-wide and systematically populated. Transpower proposes to conduct a pre-certification PSMS preparedness audit approximately 3 months prior to the formal audit, which must take place by March 2012. Accreditation for PAS 55 is planned for March 2013. Page 9
5.1.1 OVERALL PROJECT TIMETABLE The table below provides the planned project timetable. It sets out the main activities, and indicative dates, involved in the development of the asset risk management framework, achieving PAS 55 and public safety management system accreditation. Activity Start Finish 1. Appoint project team Q1 2011 Q2 2011 2. Conduct detailed PSMS gap analysis workshop Q1 2011 Q2 2011 3. Develop & agree asset risk framework and process Q1 2011 Q22011 4. Update / revise asset risk registers and schedules Q2 2011 Q3 2011 5. Revise and update asset management strategies / plans Q2 2011 Q4 2011 6. Conduct NZS7901:2008 preparedness audit Q4 2011 Q4 2011 7. Seek NZS7901:2008 compliance accreditation Q3 2012 Q3 2012 8. Conduct PAS 55 preparedness audit Q3 2012 Q4 2012 9. Seek PAS 55 external certification Q4 2012 Q1 2013 Page 10