ASSET MANAGEMENT PLAN - Eastland Group

1 ASSET MANAGEMENT . plan . 1 April 2004 to 31 March 2014. Prepared by: Brent Stewart General Manager Operations Gavin Murphy Commercial and Legal Manager Murray Carman ASSET and Planning Manager Joe Campbell Systems Engineer Tony Leggett Design Engineer Date Prepared: 30 June 2004. Submitted in fulfilment of Requirement 24(2) of the Electricity Information Disclosure Requirements 2004 and Amendments AMP Version EXECUTIVE SUMMARY. Purpose and Background This ASSET MANAGEMENT plan ( AMP ) has been prepared to meet regulatory compliance requirements, demonstrate responsible ASSET stewardship, integrate customer views, and communicate and justify network MANAGEMENT practice and expenditure to Eastland Network ( ENL ) stakeholders. Primary stakeholders include ENL's shareholders and customers, including retailers, generators and end- use electricity consumers.

2 Other parties with an interest in ENL's ASSET MANAGEMENT include contractors who physically work on the system and regulatory agencies. Covering a 10 year period from 2004 to 2014, and prepared on 30 June 2004 the plan documents how ENL ensures long lived network assets are being managed in a sustainable way over their lifecycle. The next revision of the AMP, (covering the period 2005 to 2015) will be prepared for disclosure on 30 June 2005. Many factors impact on the effective long term MANAGEMENT of a complex network of electricity assets, the life of which exceeds the tenure of the Managers responsible for them and whose operating environment introduces significant investment risks. For this reason, the overall scope of the AMP is wide, covering likely changes in the regulatory environment, future service demands and technology development.

3 While making long term projections to provide sustainability and establish the framework for ENL's future, the AMP primarily drives work programmes in the short to medium term. It is in all respects a living document. The practices and processes described are subject to continuous improvement, and detailed work programmes are progressively refined throughout the year. The ENL ASSET MANAGEMENT team is the owner of this AMP. The Assets The distribution network assets included within the scope of the AMP are indicated below together with quantities and the current replacement cost valuation. Note the valuation figures are provisional and based on the draft ODV Handbook December 2003. Category Quantity Valuation (RC)($000). 1 50/33 kV Overhead lines 327 km 5136.

4 50/33 kV Poles 2441 10154. 33kV Cables 11. 2 11 kV Overhead lines 2454 km 25326. 11 kV Underground cables 122 km 11172. 11 kV Poles 26856 36436. AMP Version 3 LT Lines 538 km 10223. LT Cables 188 km 11614. LT Poles 9455 9408. 4 Service connections 24876 5617. 5 Load control equipment (Relays) **. 6 Major substations ** 19 12504. 7 Zone transformers ** 23 4628. 8 Circuit breakers ** 181. 9 Distribution transformers 3509 18619. Voltage Regulators 9 585. Distribution Substations / Switching Stations 3583 5339. 10 Pole mounted isolation equipment (11 kV Fuses) 2856 6253. 11 Distribution 11 kV switchgear (includes ABS's and branch fusing) 1562 8913. Sub-transmission Switchgear 14 205. 12 LV switchgear * 533. 13 Control and protection equipment ** - 435.

5 14 Communications equipment ** - 680. 15 SCADA ** - 341. * LV switchgear values are included with LT cables and Distribution Substations ** Includes Communications, SCADA Control Equipment, Land, Load Control Injection Equipment, Switchgear and Transformers at the sites. ** Costs are included in major substations and distribution switchgear ** Costs exclude items in major substations. Control and protection equipment costs include site establishment for remote 50kV switching stations. Like most network infrastructure, ENLs distribution assets are dispersed over a large area and are highly interdependent. Although the service area includes Gisborne city and Wairoa township, the existing network is predominantly rural in character. It is also the cumulative result of almost 80 years investment and development.

6 The average age of the distribution network at the end of 2003/04 planning period is estimated to be 22 years. This is expected to remain the steady state by the end of the planning period. However further network renewal will be undertaken to meet improved service targets and growth demands. The condition profile of substation assets and major transformers has benefited from upgrades undertaken over the past 5 years, while other assets such as load control and protection equipment will be the subject of technology driven renewal in coming years. Corporate Objectives and Strategy Eastland Network Limited (ENL) is owned by the Eastern Energy Community Trust (EECT) and as such, MANAGEMENT has a strong focus on community-based objectives. Delivery of price, services and quality are all factors that influence the competitiveness of local wealth creating business.

7 During the 2003/04 financial year AMP Version ii the EECT (the Eastland Network Limited Shareholder), in conjunction with the Board of Eastland Network Limited, signaled its desire for a MANAGEMENT company to service the MANAGEMENT requirements of the operating companies that the EECT. owned. This resulted in Eastland Infrastructure Limited (EIL) being formed and engaged by ENL to provide MANAGEMENT and support services. The establishment of EIL has enabled the company to reduce overhead costs. The introduction of the final Electricity Lines Company Regulation and the Targeted Control Regime, has further enhanced and quantified ENL's focus on price, service and quality. EIL's MANAGEMENT strategy for the Network business is to add to its shareholders value whilst ensuring it remains compliant with the new regulatory regime.

8 Lack of retail competition and inefficiencies in transmission services delivery are major cost drivers for ENL's business. Transpower transmission lines from Tuai to Gisborne are nearing a point where they will not be able to meet a reasonable contingency test. ENL needs to work with Transpower and the regulatory bodies to determine who is best placed to own the assets required to ensure capacity is provided in a cost effective manner. Looking to the future the company has formed a view that investment in further distributed generation can improve network performance, defer capital expenditure in transmission upgrades and provide local industry with a competitive and sustainable energy source. A number of trial sites have been set up for wind generation and these are achieving positive results.

9 Other initiatives include the investigation of generation opportunities using hydro and coal. ENL's overall business performance objective is to achieve and maintain an industry position that is above the average of a benchmark Group of comparable companies for returns and growth. In addition to establishing appropriate valuation targets for segments of it's network and implementing plans to reduce or increase value accordingly, ENL's pricing policy also serves to signal true economic costs as far as possible and ensure efficient ASSET allocation and investment decisions. Strategic objectives for adding to organizational competency include a focus on quality, health and safety improvements, risk MANAGEMENT processes, staff training and development.

10 Service Levels The overall objective of ASSET MANAGEMENT is to ensure the most efficient and optimum investment in assets to provide desired service delivery. Performance targets are established by considering a wide range of business and ASSET MANAGEMENT drivers, some directly influenced by stakeholders, others a result of the historical pattern of development of ENLs network. ENL has surveyed major customers in various market segments and considers their views and willingness to pay when making base investment decisions. AMP Version iii A backlog in network renewal existed at the start of the 2000/01 planning period, which evidenced itself in an aging network and poor reliability performance. Between 2000 and 2004 the majority of the network condition issues have been corrected, providing a network configuration and capacity that is sufficient to meet minimum service targets.