Independent Engineer’s Report on
the Asset Adjustment Process of:
OtagoNet Joint Venture
„
1 November 2011
Independent Engineer’s Report on the
Asset Adjustment Process of:
OtagoNet Joint Venture
„
1 November 2011
Level 3
12-16 Nicholls Lane
Parnell 1149
PO Box 9806
Auckland
Tel: +64 9 928 5500
Fax: +64 9 928 5501
Web: www.skmconsulting.com
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Knight Merz Pty Ltd. Use or copying of this document in whole or in part without the written
permission of Sinclair Knight Merz constitutes an infringement of copyright.
LIMITATION: This report has been prepared on behalf of and for the exclusive use of Sinclair
Knight Merz Pty Ltd’s Client, and is subject to and issued in connection with the provisions of the
agreement between Sinclair Knight Merz and its Client. Sinclair Knight Merz accepts no liability or
responsibility whatsoever for or in respect of any use of or reliance upon this report by any third
party.
The SKM logo trade mark is a registered trade mark of Sinclair Knight Merz Pty Ltd.
OtagoNet’s Asset Adjustment Process
Contents
Executive Summary
1 1. Introduction
3 1.1. 1.2. 3 4 Background
Processes
2. Information Provided by OJV
5 3. Consideration of RAB Adjustments
6 4. 3.1. 3.2. Load Control Relays
Correct Asset Register Errors
3.2.1. 3.2.2. 3.2.3. 3.2.4. 3.2.5. 3.2.6. 3.2.7. Value Modified: Reclosers
Value Modified: 11kV cables and LV cables
Assets Omitted in Error: Distribution Substation Fuses
Assets Omitted in Error: Regulating Transformers
Assets Omitted in Error: Kiness Structure
Assets Omitted in Error: Streetlight ICPs
Assets Omitted in Error: Distribution Substation MDIs
3.3. Reapplication of Asset Multipliers
3.3.1. 3.3.2. 3.3.3. 3.3.4. Re-apply an existing multiplier: Remote multiplier applied to Zone Subs
Re-apply an existing multiplier; remote multiplier region extended
Re-apply an existing multiplier; rugged multiplier region extended
Re-apply a modified multiplier: Rugged
3.4. 3.5. Re-apply Optimisation and/or Economic Value Test
Other Issues
Summary
6 7 7 8 8 9 9 9 10 10 11 12 15 18 19 19 21 Appendix A Table Summary of Asset Value Adjustments: Schedule A4 22 Appendix B OJV’s Instructions to Engineer
23 Appendix C Signed Statement by Engineer
24 Appendix D Additional Information
25 SINCLAIR KNIGHT MERZ
PAGE i
OtagoNet’s Asset Adjustment Process
Document history and status
Revision
Date issued
Reviewed by
Approved by
Date approved
Revision type
0
25 May 2011
D Healy
S Wightman
25 May 2011
Draft
1
26 May 2011
D Smith
S Wightman
26 May 2011
Final
2
28 June 2011
S Wightman
S Wightman
28 June 2011
Update subsequent to
Commerce Commission
comments.
3
1 Nov 2011
S Wightman
S Wightman
1 Nov 2011
Update requested by
OtagoNet
Distribution of copies
Revision
Copy no
Quantity
Issued to
0
Electronic
1
Terry Jones
1
Electronic
1
Terry Jones
2
Electronic
2
Terry Jones
3
Electronic
2
Wayne Stronach / Ken Forrest
Printed:
1 November 2011
Last saved:
1 November 2011 12:20 PM
File name:
I:\ZPINA\Projects\ZP01068\Deliverables\ZP01068 - OtagoNet Engineering Report Updated 1-11-11.docx
Author:
Richard Fairbairn
Project manager:
Richard Fairbairn
Name of organisation:
OtagoNet Joint Venture
Name of project:
Adjusted 2004 RAB
Name of document:
Independent Engineer’s Report on the Asset Adjustment Process of OJV Networks
Document version:
Version 3
Project number:
ZP01068
SINCLAIR KNIGHT MERZ
PAGE ii
OtagoNet’s Asset Adjustment Process
GLOSSARY
EDB
Electricity Distribution Business
DRC
Depreciated Replacement Cost
EDB IM
Electricity Distribution Input Methodologies
GIS
Geographic Information System
ODRC
Optimised Depreciated Replacement Cost
ODV
Optimised Deprival Valuation
ORC
Optimised Replacement Cost
RAB
Regulatory Asset Base
RC
Replacement Cost
SKM
Sinclair Knight Merz
SINCLAIR KNIGHT MERZ
PAGE iii
OtagoNet’s Asset Adjustment Process
Executive Summary
On 22 December 2010 the Commerce Commission (Commission) released a document entitled
“Commerce Act (Electricity Distribution Input Methodologies) Determination 2010” (EDB IM).
The EDB IM outlines a set of modifications (referred to as the “asset adjustment process”) that
Electricity Distribution Businesses (EDBs) may choose to undertake to their disclosed 2004 ODVs
as part of the process to establish an Initial Regulatory Asset Base (Initial RAB) as defined in
clause 2.2.2 of the EDB IM.
On 16 March 2011 OtagoNet Joint Venture (OJV) received, from the Commission, a “Notice to
supply information to the Commerce Commission Section - 53ZD of the Commerce Act 1986”
(Section 53ZD Notice). Associated with this Section 53ZD Notice was the requirement that OJV
supply an Independent Engineer’s Report in respect of the asset adjustment process used for setting
its Initial RAB. The exact requirements of this report are contained in “Schedule C: Information
Requirements for Engineer’s Report” of the Section 53ZD Notice.
Sinclair Knight Merz (SKM) was retained by OJV to review the changes to its 2004 ODV and to
prepare an Independent Engineer’s Report in accordance with Schedule C of the Section 53ZD
Notice. SKM issued an initial report 1 that OJV included in their submission to the Commerce
Commission. The Commerce Commission subsequently requested additional
information/explanation in relation to modifications to multipliers and SKM and issued a second
report 2 . The timeline associated with the above mentioned Section 53ZD notice was relatively
short. As a result OJV has continued to review its 2004 ODV data/information sources, and
subsequently requested 3 SKM’s review/consideration of modifications to its 2004 RAB. This is the
subject of this report.
The following table summarises the differences between OJV’s original 2004 ODV and its adjusted
2004 ODV following the updated asset adjustment process (“Adjusted 2004 RAB”).
2004 ODV
Adjusted 2004 RAB
31 March 2004
31 March 2004
($'000)
Replacement Cost (RC)
Depreciated Replacement Cost (DRC)
199,732
($'000)
Movement
($'000)
242,121
42,389
17,023
95,536
112,559
198,036
240,164
42,128
Optimised Depreciated Replacment Cost (ODRC)
94,682
111,622
16,940
Optimised Deprival Value (ODV)
91,372
108,312
16,940
Optimised Replacement Cost (ORC)
1
Version 1 dated 26th May 2011.
Version 2 dated 28th June 2011.
3
Second letter of instruction issued to SKM dated 14 September 2011 (Refer to Appendix B).
2
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
The following table outlines the adjustments to OJV’s disclosed valuation over the period 2004
through 2009 (year ending 31 March).
Year
Value of Adjustments
(ODV)
SINCLAIR KNIGHT MERZ
2004
2005
2006
2007
2008
2009
$16.940m
$0
$0
$0
$0
$0
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OtagoNet’s Asset Adjustment Process
1.
Introduction
1.1.
Background
Sinclair Knight Merz (SKM) was retained by OtagoNet Joint Venture (OJV) to undertake an
independent review of the OJV asset adjustment process. SKM’s review was undertaken to
determine the appropriateness of the proposed adjustments in respect of the asset adjustment
process as set out in clause 2.2.1 of the “Commerce Act (Electricity Distribution Input
Methodologies) Determination 2010”, 22 December 2010 (EDB IM). The findings of SKM’s
review were documented in a report titled “Independent Engineer’s Report on the Asset Adjustment
Process of: OtagoNet Joint Venture”, Version 1, dated 26 May 2011. SKM subsequently issued
Version 2 of the report, dated 28 June 2011, which included additional clarifications regarding the
modification of multipliers.
This report (Version 3) is issued by SKM, at OJV’s request (refer to second letter of instruction
dated 14 September in Appendix B), and details an updated independent review. SKM has prepared
it with the objective of complying with the requirements for the Independent Engineer’s Report in
Schedule C of the Commerce Commission’s “Notice to supply information to the Commerce
Commission Section 53ZD of the Commerce Act 1986 (Section 53ZD Notice), dated 16 March
2011. A copy of the signed statement required by the Section 53 ZD Notice is provided in
Appendix C.
SKM’s review principally considered the following elements of the asset adjustment process:
„
corrections for asset errors;
„
the reapplication of existing asset multipliers;
„
the application of modified asset multipliers; and
„
the reapplication of optimisation or economic value.
In comparison to previous versions of SKM’s Independent Engineer’s Report the material changes
in this version (Version 3) are those associated with the following:
1) An increase in the geographical area to which the remote multiplier is applied.
2) An increase in the magnitude of the rugged multiplier that is applied.
For the previous Independent Engineer’s Report OJV did not supply any information or views
relating to the above two issues and simply adopted the values/methodologies used to establish the
2004 ODV. SKM understand that OJV following this path due to time/resource constraints.
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
1.2.
Processes
The preparation of this report has been the responsibility of SKM. We have relied upon
information and data prepared by OJV. Wherever possible we have sought to verify this data to
check its validity. SKM has not conducted field /site visits to confirm the accuracy of OJV’s asset
management systems. We note that, during 2010, SKM undertook a field/site visit associated with
OJV’s 2010 financial/accounting valuation 4 . During this review SKM undertook a number of
sample data checks of OJV’s asset management systems and compared these with assets in the
field. We also sampled, using site visits, regions that OJV had defined as rugged.
In the interests of accuracy and completeness, there has been interaction between SKM and OJV
during the review. This has been undertaken via telephone discussions, email correspondence and
direct meetings.
4
“2010 IAS-16 Valuation – Engineering Field Audit/Visit – Balclutha”, SKM Memo dated 9/01/2010.
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
2.
Information Provided by OJV
OJV’s 2004 ODV is contained within an MS-Access database which was populated from the
company’s asset management systems/databases.
OJV supplied SKM with a number of documents/files to support the proposed adjustment to its
2004 RAB, as follows:
„
2011 Asset Management Plan;
„
2004 ODV Report;
„
“OtagoNet ODV 31 March 2004 Adjustment for Errors & Omissions”, OtagoNet report.
„
“Distribution Substation Dropout Fuses.xls”, MS-Excel file outlining missing DDO’s.
„
“Regulator Transformers.xls”, MS-Excel file outlining transformer regulators.
„
„
„
“Zone Substations with multiplier on all remote assets.xls”, MS-Excel file outlining zone
substation assets.
“OtagoNet Asset Registers Corrected on 13_5_2011 from original 20.12.04.xls”, MS-Excel
file containing a reconciliation between the 2004 ODV and the adjusted 2004 RAB.
“OtagoNet Additions and Multipliers.XLS”, MS-Excel file containing a breakdown of the
adjustments proposed to establish the 2004 RAB – in the form requested by SKM. This file
was superseded by the information that follows.
OJV has subsequently supplied the following (over the period 14 September 2011 through 20
October 2011):
„
„
„
“OtagoNetSummary_Final_CorrrQuan.XLS”, MS-Excel file containing a breakdown of the
adjustment proposed to establish the 2004 RAB – in the form requested by SKM.
A quotation and other evidence in relation to the construction of a 29km, 33kV overhead line
in rugged terrain, which has included:
–
A letter titled “33kV Overhead Line – Palmerston to Deep Dell Substation” from Otago
Power Services, dated 12 October 2011.
–
Photographs of the 33kV line route
–
GIS maps demonstrating the extent of OJVs application of the rugged multiplier to the
33kV line.
A map outlining the updated application of the remote multiplier.
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
3.
Consideration of RAB Adjustments
This section sets out the adjustments to the OJV 2004 RAB made under the asset adjustment
process.
3.1.
Load Control Relays
Reference EDB IM cl 2.2.1(2)(a). An EDB may designate a load control relay asset owned by an
EDB, except a 2009 disclosed asset, as of ‘included’ type. Clause 2.2.1(3) goes on to say that
assets to which sub-clause (2)(a) applies may be valued as:
„
„
its depreciated historic cost as at 31 March 2009; or
if there are insufficient records, then its depreciated carrying value from the general purpose
financial statements.
OJV has not included load control relays in its Adjusted 2004 RAB.
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
3.2.
Correct Asset Register Errors
Reference EDB IM cl 2.2.1(2)(b). EDBs may correct asset related errors in the light of new
information. The allowable corrections being due to:
„
assets being omitted in error;
„
assets being included in error;
„
assets being incorrectly categorised; and
„
asset ages, quantity, category or locations being incorrectly recorded.
OJV identified three asset categories for which asset ages, quantity or locations were incorrectly
recorded and five asset categories for which assets were omitted in error during the 2004 ODV
process. These are outlined in the following sections.
3.2.1.
Value Modified: Reclosers
The data extracted from the 2004 GIS extraction produced invalid dates for reclosers which
resulted in them having no depreciation deduced in the 2004 ODV database. Table 4 illustrates
that correcting the date data reduced the DRC and the ODRC of the reclosers by approximately
$1.4M. SKM has reviewed the information relating to this deduction and is satisfied that it is
justified.
SINCLAIR KNIGHT MERZ
PAGE 7
OtagoNet’s Asset Adjustment Process
„
Table 1 Movement in 2004 ODV due to recloser date error
Quantity
2004 ODV as disclosed
2004 corrected
Total Movement
3.2.2.
69
69
0
RC
($000)
1,863
1,863
0
ORC
($000)
1,863
1,863
0
DRC
($000)
1,863
438
-1,425
ODRC
($000)
1,863
438
-1,425
Value Modified: 11kV cables and LV cables
The GIS data extraction process and subsequent database used to establish the 2004 ODV
contained 4.7km of LV cable and 6.9km of 6.6/11kV cable. Since the original database was
produced, OJVs GIS data has been improved, errors corrected and now includes 10km of LV cable
and 9km of 11kV cable constructed before 31/3/2004. Table 2 and Table 3 illustrate the respective
movements due to the modification of 11kV and LV cable information.
„
„
Table 2 Movement in 2004 ODV due to 11kV cable quantity error
Quantity
RC
DRC
($000)
($000)
2004 ODV as disclosed
6.9
596
327
2004 corrected
9.0
882
625
Total Movement
2.1
286
298
Table 3 Movement in 2004 ODV due to LV cable quantity error
Quantity
RC
DRC
($000)
„
($000
)
2004 ODV as disclosed
2004 corrected
Total Movement
3.2.3.
4.7
10.0
5.3
297
636
339
ORC
($000)
596
882
286
OR
C
„
143
339
196
„
($0
00)
297
636
339
ODRC
($000)
327
625
298
OD
RC
„
„
($0
00)
143
339
196
Assets Omitted in Error: Distribution Substation Fuses
Item (e) on Page 37 of the ODV Handbook specifically notes that the standard pole mounted
transformer costs do not include the costs associated with distribution drop out fuses (DDOs). OJV
did not include, as a separate item, these DDOs in its 2004 ODV and thus propose to include them
in its Adjusted 2004 RAB.
OJV has determined the number and type of DDOs omitted based on the distribution transformer
information in its original 2004 ODV database. The distribution transformer manufactured dates
have been used to determine the ages of the DDOs. SKM has reviewed the information provided
by OJV and consider the approach taken by OJV to be sensible and justified.
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
Table 4 illustrates that 4,060 DDOs were omitted and have now been included with a total ODRC
of $4.0M 5 .
3.2.4.
Assets Omitted in Error: Regulating Transformers
During the 2004 ODV process sixteen regulating transformers contained within OJV substations
(and one spare) were identified and valued. However, two line regulating transformers 6 adjacent to
the Naseby substation were omitted in error. OJV proposed as part of the update to include these in
the Adjusted 2004 RAB. SKM understands that OJV has used the nameplate data for the
regulating transformers to establish the installation dates (for depreciation purposes).
Table 4 illustrates that two regulating transformers were omitted and are now included with a total
ODRC value of approximately $0.1M. SKM has reviewed the information relating to these
additions and is satisfied that they are justified.
3.2.5.
Assets Omitted in Error: Kiness Structure
This assessment was based on updated information supplied by OJV over the period 14 September
2011 through 20 October 2011.
During OJV’s 2004 ODV process, 31 Substation structures associated with OJV substations were
identified and valued. However, the structure at Kiness 7 which contains six air break switches and
two reclosers was omitted in error. OJV now proposes to include this in the Adjusted 2004 RAB.
The average commissioning date of the assets at Kiness is 6 May 1992 and was used to establish
the age of the structure. Table 4 illustrates that that the Kiness Structure has a total ODRC value
of approximately $10K. SKM has reviewed the information relating to these additions and is
satisfied that they are justified.
3.2.6.
Assets Omitted in Error: Streetlight ICPs
This assessment was based on updated information supplied by OJV over the period 14 September
2011 through 20 October 2011.
During OJV’s 2004 ODV process, 15,299 ICPs were identified and valued. However, 2,414 ICPs
which relate to streetlights were omitted in error. OJV now proposes to include these in the
Adjusted 2004 RAB. The age of the street light ICPs has been taken from the age of the low
voltage to which they are connected and each ICP has been valued using a 2004 Handbook cost of
5
This ODRC figure excludes the application of multipliers which are included in Section 3.3.
OJV’s script that dumped information from its Geographic Information System (GIS) did not have the
functionality to detect line regulators.
7
The substation asset list was compiled manually and this structure was overlooked.
6
SINCLAIR KNIGHT MERZ
PAGE 9
OtagoNet’s Asset Adjustment Process
$70. Table 4 illustrates that the Streetlight ICPs have a total ODRC value of approximately $44K.
SKM has reviewed the information relating to these additions and is satisfied that they are justified.
3.2.7.
Assets Omitted in Error: Distribution Substation MDIs
This assessment was based on updated information supplied by OJV over the period 14 September
2011 through 20 October 2011.
Items (e), (f) and (l) on page 37 of the 2004 ODV Handbook specify the equipment that is included
in the standard costs associated with a distribution substation. This does not include any metering
or maximum demand indicators (MDIs). This equipment was omitted in error from OJV’s 2004
ODV. OJV now proposes to include 184 MDIs in the Adjusted 2004 RAB. The age of the MDIs
has been taken from the distribution transformer age, which is believed to be conservative as the
MDIs will generally be newer than the transformer which they are monitoring. Table 4 contains the
details of the MDIs that were omitted and have now been included, with a total ODRC value of
approximately $35k. SKM has reviewed the information relating to this addition and is satisfied
that it is justified.
Table 4 Summary of movements in 2004 ODV due to asset register errors
„
Asset
Quantity
RC
DRC
ORC
ODRC
($'000)
($'000)
($'000)
($'000)
4,060
8,546
3,958
8,549
3,958
Regulating Transformers
2
103
97
103
97
Kiness Structure
1
13
10
13
10
2,414
169
44
169
44
Distribution Substation DDOs
Streetlight ICPs
Substation MDIs
184
147
35
147
35
Reclosers
0
0
-1,425
0
-1,425
11kV cable
2
286
298
286
298
LV cable
5
339
196
339
196
6,668
9,603
3,213
9,606
3,213
Total Movement
3.3.
Reapplication of Asset Multipliers
Reference EDB IM cl 2.2.1(2)(c). EDBs may reapply multipliers where more accurate information
has become available.
OJV proposes to make three adjustments to its application of multipliers that were used in its 2004
ODV. These are:
„
apply the remote multiplier to zone substation assets;
SINCLAIR KNIGHT MERZ
PAGE 10
OtagoNet’s Asset Adjustment Process
„
redefine the boundary for remote assets;
„
redefine the regions to which the rugged multiplier is applied; and
„
increase the magnitude of the rugged multiplier.
3.3.1.
Re-apply an existing multiplier: Remote multiplier applied to Zone Subs
OJV’s 2004 ODV only applied a remote multiplier to selected zone substation equipment 8 . The
equipment selected for remote multiplier application was that associated with line equipment (i.e.
reclosers, ABS, DDOs). OJV has reviewed the 2004 zone substation costs, considered vehicle
travel times & staff accommodation requirements and is of the view that remote multipliers should
have been applied to a wider range of zone substation equipment.
Given the related costs OJV proposes to apply a remote multiplier of 1.15 9 to all equipment in the
following zone substations:
„
„
„
„
„
„
„
„
„
„
„
„
„
„
„
Ranfurly,
Wedderburn,
Oturehua,
Brothers Peak,
Paerau Power House,
Craiglyn Station,
Patearoa,
Middlemarch,
Deepdell,
Hyde,
Waipiata,
Paerau,
Stoneburn,
Redbank, and
Palmerston
All of the above substations are located in excess of 75kms from OJV’s contractor works depots.
Table 5 illustrates that the proposed adjustment increases the 2004 RAB by $0.6M in terms of
ODRC. SKM has reviewed the proposed expansion of the remote multiplier and considers it to be
appropriate.
8
9
A remote multiplier was applied to four reclosers at the Ranfurly substation.
For the 2004 ODV, OJV only applied a remote multiplier (1.15) to lines in these locations.
SINCLAIR KNIGHT MERZ
PAGE 11
OtagoNet’s Asset Adjustment Process
„
Table 5: Remote multiplier: Application to zone substation assets
Asset
Site Development and Buildings
Transformers
Transformers - Extended Life
33 kV Outdoor Circuit Breakers
22/11kV Outdoor Circuit Breakers
Feeder Outdoor Switchgear
Transformer Protection and Controls
Feeder Protection and Controls
Outdoor Structure Concrete
SCADA and Communications Equipment
Ripple Injection Plant
DC Supplies, batteries and inverters
Total Movement
2004 ODV - All zone substations
Adjusted 2004 RAB - All zone substations
3.3.2.
Quantity
-
RC
DRC
ORC
ODRC
($'000)
342
24
94
83
57
78
43
58
116
64
144
7
($'000)
269
12
29
38
38
29
26
32
55
45
70
4
($'000)
342
24
94
83
57
73
43
58
116
64
144
7
($'000)
269
12
29
38
38
28
26
32
55
45
70
4
1,110
647
1,105
646
29,307
30,417
15,740
16,387
29,209
30,314
15,708
16,354
Re-apply an existing multiplier; remote multiplier region extended
Figure 1 illustrates a high level image of the overhead lines to which OJV applied a remote
multiplier during the 2004 ODV process. For the 2004 ODV the distance used to define the remote
multiplier was measured from Palmerston or Balcutha (whichever was less) and the distance was
based on a linear (i.e. as crow flies), rather than road travel distance. Whilst reviewing the 2004
ODV database OJV discovered that a portion of its network had been omitted in error, and this
error was corrected in the Independent Engineer’s Report issued 28 June 2011.
OJV have subsequently reviewed the above assessment and over the period 14 September 2011
through 20 October 2011submitted to SKM updated information, which is discussed below.
The 2004 ODV handbook defines remote areas as “those which are situated more than 75km from
the ELB’s or the ELB contractors nearest works depot”. OJV’s works depot and those of its
contractors are primarily in Balcutha (39 staff) and Gore (29 staff). There are small depots in
Palmerston (8 staff) and Ranfurly (8 staff), which primarily undertake maintenance/operational
tasks, for example, preventative maintenance, reactive maintenance (faults) and vegetation
management. These small depots are not equipped to undertake significant construction projects,
particularly of the scale outlined in the 2004 ODV Handbook.
SINCLAIR KNIGHT MERZ
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OtagoNet’s Asset Adjustment Process
OJV proposes to correct this error and apply a remote multiplier of 1.15 to line assets that are
greater than 75kms from the Balclutha/Gore depots. Figure 2 visually illustrates the extent of the
area that has been included/corrected, which includes a group of lines between Palmerston and
Deepdel (≈41kms of sub-transmission line and ≈184kms of 11kV distribution line). SKM is of the
view that the re-classification of these assets (to remote) in OJV’s Adjusted 2004 RAB is
reasonable.
The following Table 6 illustrates the extent of the proposed adjustment leading to an increase of
$1.3M in terms of ODRC. Examination of Table 6 shows that the remote multiplier has also been
applied to switchgear, distribution transformers/substations and customer service connections.
„
Table 6: Reapply existing remote multiplier to extended area
Asset
Quantity
Subtransmission lines and cables
Distribution Lines and cables
Distribution Switchgear
Distribution Transformers
Distribution Substations
LV Lines and cables
Customer Service Connections
41
184
1,016
762
781
40
3,104
Total Movement
5,928
SINCLAIR KNIGHT MERZ
RC
DRC
ORC ODRC
($'000) ($'000) ($'000) ($'000)
423
113
423
113
1,083
527 1,077
523
536
200
536
200
454
276
450
274
141
83
136
80
176
90
176
90
44
18
44
18
2,857
1,307
2,840
1,296
PAGE 13
OtagoNet’s Asset Adjustment Process
„
Figure 1: 2004 ODV remote multiplier: overhead lines
„
Figure 2: Adjusted 2004 RAB remote multiplier: overhead lines
Adjusted Remote
Multiplier Area
SINCLAIR KNIGHT MERZ
PAGE 14
OtagoNet’s Asset Adjustment Process
3.3.3.
Re-apply an existing multiplier; rugged multiplier region extended
Figure 3 illustrates a high level image of the overhead lines to which OtagoNet applied the rugged
multiplier during the 2004 ODV process. For the 2004 ODV, OJV relied on contractor/staff
experience to identify specific sections of line, totalling 435km 10 , located in rugged terrain.
Since 2004 OJV has established an improved set of GIS tools and more precise geographic
information (i.e. land terrain overlays). These improvements have been used to better define
rugged areas. A large proportion of OJVs lines are located in these rugged areas, which cover
some 40% of its franchise area, due to the historic practice which saw lines built from farm to farm
across country without any attempt to follow the roads.
Figure 4 illustrates a high level image of the overhead lines to which OJV now proposes to apply a
rugged multiplier of 1.2 11 . The proposed updates result in the rugged multiplier being applied to an
additional 1,326 km of line (making a total of 1,771 km of rugged lines). SKM has undertaken a
number of random checks (using topographic/road maps) of the regions to which OJV proposes to
apply rugged multipliers and has not identified any significant issues. We are in agreement with
OJV that line construction in the locations reviewed/indentified would incur additional cost due to
difficult access. We note that SKM undertook a field audit of the rugged regions identified during
OJV’s 2010 financial/accounting valuation. During the field audit SKM noted that the magnitude
of the proposed rugged multiplier was relatively low when one considers that OJV owns lines
located in very rugged terrain which are regularly exposed to snow/ice.
This proposed change to the regions to which the rugged multiplier is applied results in an increase
of $3.4M in terms of ODRC.
10
11
Total overhead line length of 4,077km in the 2004 ODV.
For the 2004 ODV OJV applied a rugged multiplier of 1.2 to lines in rugged locations.
SINCLAIR KNIGHT MERZ
PAGE 15
OtagoNet’s Asset Adjustment Process
„
Table 7: Reapply existing rugged multiplier to extended area
Asset
Quantity
Subtransmission lines and cables
Distribution Lines and cables
Distribution Switchgear
Distribution Transformers
Distribution Substations
LV Lines and cables
Customer Service Connections
237
1,085
5
-
Total Movement
1,326
„
RC
DRC
ORC ODRC
($'000) ($'000) ($'000) ($'000)
2,260
779 2,195
765
5,511 2,594 5,511 2,594
34
7
34
7
7,805
3,381
7,740
3,367
Figure 3 2004 ODV rugged multiplier: overhead lines
SINCLAIR KNIGHT MERZ
PAGE 16
OtagoNet’s Asset Adjustment Process
„
Figure 4 Adjusted 2004 RAB rugged multiplier: overhead lines
The calculation methodology employed (to arrive at the adjustments outlined above) for a number
of overhead line categories is illustrated in the following Table 8. Table 8 contains the following
different breakdowns:
„
the 2004 ODV (red),
„
the 2004 Adjusted RAB (green), and
„
the associated modified value.
Note that Table 8 indicates identical line lengths for the 2004 ODV and the 2004 Adjusted RAB
and that the remote and rugged multipliers have been applied to different line lengths.
SINCLAIR KNIGHT MERZ
PAGE 17
OtagoNet’s Asset Adjustment Process
„
Table 8: Sample calculations: Re-apply an existing multiplier
Original 2004 ODV
Component Type
66kV Line Medium - Primary - Concrete
66kV Line Medium - Primary - Wood
33KV Line Light - Primary - Concrete
33KV Line Light - Primary - Wood
11kV LINE Light - Primary - Concrete
11kV LINE Light - Primary - Wood
LV LINE MEDIUM 4 Wire - Primary - Concrete
LV LINE MEDIUM 4 Wire - Primary - Wood
LV LINE MEDIUM 2 Wire - Primary - Concrete
LV LINE MEDIUM 2 Wire - Primary - Wood
Length Standard Life Remaining Life
km
Years
Years
60
60
41
14
45
28
192
60
29
306
45
12
1,626
60
26
939
45
21
46
60
19
25
45
12
13
60
20
24
45
10
RC per km
($000)
69
69
45
45
26
25
42
42
36
36
TOTAL
Remote kms Rugged kms
RC
1.15
1.2
($000)
60
0
4,745
14
0
1,096
90
45
9,581
76
128
15,210
306
174
43,326
341
159
25,716
0
0
1,921
0
0
1,057
0
0
452
0
0
856
888
506
103,959
ORC
($000)
4,745
1,096
9,211
14,576
43,326
25,716
1,921
1,057
452
856
102,955
DRC
($000)
3,263
682
4,708
4,148
18,581
11,990
600
285
148
182
44,586
ODRC
($000)
3,263
682
4,482
3,941
18,581
11,990
600
285
148
182
44,153
Length Standard Life Remaining Life
km
Years
Years
60
60
41
14
45
28
192
60
29
306
45
12
1,626
60
26
939
45
21
46
60
19
25
45
12
13
60
20
24
45
10
RC per km
($000)
69
69
45
45
25
25
42
42
36
36
TOTAL
Remote kms Rugged kms
RC
1.15
1.2
($000)
60
51
5,274
14
12
1,225
91
123
10,114
85
277
16,281
320
863
45,994
359
523
27,164
2
0
1,934
1
1
1,071
1
0
459
2
2
875
934
1,854
110,391
ORC
($000)
5,274
1,225
9,767
15,584
45,994
27,164
1,934
1,071
459
875
109,346
DRC
($000)
3,638
769
4,942
4,370
19,750
12,834
604
288
151
187
47,532
ODRC
($000)
3,638
769
4,730
4,150
19,750
12,834
604
288
151
187
47,100
Length Standard Life Remaining Life
km
Years
Years
-
RC per km
($000)
TOTAL
Remote kms Rugged kms
1.15
1.2
0
51
0
12
0
78
9
150
13
689
18
364
2
0
1
1
1
0
2
2
48
1,349
ORC
($000)
529
129
556
1,008
2,668
1,447
13
14
7
19
6,391
DRC
($000)
375
87
234
222
1,169
844
4
3
3
5
2,946
ODRC
($000)
375
87
248
209
1,169
844
4
3
3
5
2,947
2004 Adjusted RAB (Greater Application of Same Multipliers)
Component Type
66kV Line Medium - Primary - Concrete
66kV Line Medium - Primary - Wood
33KV Line Light - Primary - Concrete
33KV Line Light - Primary - Wood
11kV LINE Light - Primary - Concrete
11kV LINE Light - Primary - Wood
LV LINE MEDIUM 4 Wire - Primary - Concrete
LV LINE MEDIUM 4 Wire - Primary - Wood
LV LINE MEDIUM 2 Wire - Primary - Concrete
LV LINE MEDIUM 2 Wire - Primary - Wood
Modified Value
Component Type
66kV Line Medium - Primary - Concrete
66kV Line Medium - Primary - Wood
33KV Line Light - Primary - Concrete
33KV Line Light - Primary - Wood
11kV LINE Light - Primary - Concrete
11kV LINE Light - Primary - Wood
LV LINE MEDIUM 4 Wire - Primary - Concrete
LV LINE MEDIUM 4 Wire - Primary - Wood
LV LINE MEDIUM 2 Wire - Primary - Concrete
LV LINE MEDIUM 2 Wire - Primary - Wood
3.3.4.
RC
($000)
529
129
533
1,071
2,668
1,447
13
14
7
19
6,432
Re-apply a modified multiplier: Rugged
This assessment was based on updated information supplied by OJV over the period 14 September
2011 through 20 October 2011.
Reference EDB IM cl 2.2.1(2)(d). EDBs may make adjustments to multipliers in accordance with
specific new multiplier ranges.
SKM understands that OJV have reviewed their historical projects and found that network
construction in rugged areas is not reflective of the 1.2 rugged multiplier that was used for the 2004
ODV. Having said this, OJVs historical projects generally involve refurbishment/upgrade of
existing network assets and are not of significant scale. Whilst useful, these projects are not
suitable for establishing multipliers in accordance with the 2004 ODV Handbook.
At SKM’s request OJV has obtained a contractor quote to build a 29km, 33kV line from
Palmerston to Deep Dell which is considered to traverse across typical rugged terrain faced by
SINCLAIR KNIGHT MERZ
PAGE 18
OtagoNet’s Asset Adjustment Process
OJV. Appendix D contains the details associated with the quote, coupled with calculations
undertaken to arrive at a rugged multiplier of 1.6.
SKM has reviewed the documents/information provided by OJV and is of the view that it is
reasonable. SKM specifically note that OJV’s network is subjected to regular snow and ice, which
SKM expect would result in more robust structural line designs.
The proposed change to the magnitude of the rugged multiplier results in an increase of $8.4M in
terms of ODRC. Table 9 illustrates a breakdown of the changes by asset category.
„
Table 9 Rugged multiplier modified from 1.2 to 1.6
Asset
Subtransmission lines and cables
Distribution Lines and cables
Distribution Switchgear
Distribution Transformers
Distribution Substations
LV Lines and cables
Customer Service Connections
366
1,390
5
-
RC
($'000)
6,854
14,092
68
-
Total Movement
1,761
21,014
3.4.
Quantity
DRC
ORC
($'000) ($'000)
2,297
6,677
6,164 14,091
15
68
8,475
20,836
ODRC
($'000)
2,240
6,164
15
8,418
Re-apply Optimisation and/or Economic Value Test
Reference EDB IM cl 2.2.1(2)(e). EDBs may reconsider the application of optimisation based on
the network conditions during 2009.
OJV has not proposed any optimisation or EV adjustments to its 2004 RAB.
3.5.
Other Issues
OJV discussed the following valuation issues with SKM and provided SKM with additional
information over the period 14 September 2011 through 20 October 2011:
„
Zone transformer replacement costs. OJV are of the view that the zone transformer
replacement costs adopted for the 2004 ODV were too low. The increases proposed by OJV
have not been reviewed or included by SKM in the Adjusted RAB on the basis that Commerce
SINCLAIR KNIGHT MERZ
PAGE 19
OtagoNet’s Asset Adjustment Process
Commission’s asset adjustment process does not make allowance for changes in asset
replacement costs.
„
„
„
The Magnitude of the Remote Multiplier; OJV supplied SKM with a set of quotes for
undertaking line construction work in remote areas, but they did not support a change to the
magnitude of the Remote Multiplier.
Land Values; OJV are of the view that the costs associated with land values used in the 2004
ODV were too low. Again SKM has not reviewed or included adjustments to land values in the
Adjusted RAB on the basis that Commerce Commission’s asset adjustment process does not
make allowance for changes in asset replacement costs.
Optimisation; OJV discussed some minor changes to optimisation. However SKM has not
reviewed any evidence and no adjustments to optimisation have been undertaken.
SINCLAIR KNIGHT MERZ
PAGE 20
OtagoNet’s Asset Adjustment Process
4.
Summary
OJV’s asset adjustment process has focused on three areas:
„
including assets that were excluded in error during the 2004 ODV;
„
correcting an error in relation to area of application of remote multipliers; and
„
adjusting the boundary/regions for the rugged multipliers application.
Table 10 below summarises the impact on OJV’s Adjusted 2004 RAB arising from the asset
adjustment process.
„
Table 10: Summary of asset adjustment process
Asset
RC
($'000)
2004 ODV
DRC
($'000)
ORC
($'000)
ODRC
($'000)
ODV
($'000)
199,732
95,536
198,036
94,682
91,372
-
-
-
-
-
Correct Asset Registers
9,603
3,213
9,606
3,213
3,213
Re-apply Existing Remote Multiplier
3,967
1,954
3,945
1,942
1,942
Load Control Relays
Re-apply Existing Rugged Multiplier
Increase Rugged Multiplier to 1.6
Adjusted 2004 RAB
Net Movement in RAB
SINCLAIR KNIGHT MERZ
7,805
3,381
7,740
3,367
3,367
21,014
8,475
20,836
8,418
8,418
242,121
112,559
240,164
111,622
108,312
42,389
17,023
42,128
16,940
16,940
PAGE 21
OtagoNet’s Asset Adjustment Process
Appendix A Table Summary of Asset Value Adjustments: Schedule A4
EDB Name
Disclosure Year Ended
OtagoNet Joint Venture
31 March 2010
SCHEDULE A4: ASSET ADJUSTMENT PROCESS
row
6
Summary of Engineer's Valuation Adjustments (at time asset enters regulatory asset register)
7
8
Asset adjustment process - adjustments
2004 *
($000)
2005
($000)
2006
($000)
2007
($000)
2008
($000)
2009
($000)
Ref
9
10
Include load control relays
11
Correct asset register errors for 2004 ODV assets
12
Dropouts at Transformer Sites
13
Recloser date correction
11kV/LV cables, Regulators, Kiness, ICPs & MDIs
14
16
Correct asset register errors for 2005 – 2009 assets
17
Insert details of asset or similar asset type
Insert details of asset or similar asset type
Insert details of asset or similar asset type
19
3,958
(1,425)
680
3,213
15
18
2.2.1(2)(a)
–
20
21
22
23
2.2.1(2)(b)
–
–
–
–
2.2.1(2)(b)
Re-apply an existing multiplier to 2004 ODV assets
Apply remote multiplier of 1.15
Apply rugged multiplier of 1.2
1,942
3,367
24
5,309
25
26
27
2.2.1(2)(c)
Re-apply a modified multiplier to 2004 ODV assets
Apply rugged multiplier of 1.6
8,418
28
29
30
31
32
33
34
8,418
2.2.1(2)(d)
–
2.2.1(2)(e)
Re-apply optimisation or EV tests to 2004 ODV assets
Insert details of asset or similar asset type
Insert details of asset or similar asset type
Insert details of asset or similar asset type
35
36
37
38
Total value of adjustments by disclosure year
16,940
–
–
–
–
–
* Includes assets which first entered the regulatory asset register in a disclosure year prior to 2004.
39
SINCLAIR KNIGHT MERZ
Page 6
PAGE 22
OtagoNet’s Asset Adjustment Process
Appendix B OJV’s Instructions to Engineer
SINCLAIR KNIGHT MERZ
PAGE 23
ùtagoNet
Postal
-
POBox 1586
.
lnvercargill9340
.
NewZealand
Office - g2CharlotteStreet.Balclutha.Ph03 4184950. Fax03 4190141
J
\
14 September 2011
Richard Fairbairn
Manager Power Systems
Sinclair Knight Merz Limited
PO Box 9806
Newmarket
Auckland 1010
Dear Richard
Following on the work undertaken in May this year, we have further reviewed the assessment of
OtagoNet's Regulatory Asset Base (RAB) and identified a number of areas where further
improvements and corrections can be made. We have advised the Commerce Commission that this
work is underway.
ln order to allow easier reconciliation, we have used the 2004 ODV as the starting point, i.e. we have
encompassed the work already undertaken by OtagoNeVSKM and summarised in your report
"lndependent Engineer's report on the Asset Adjustment Process of: OtagoNet Joint venture" dated
26 May 2011.
ln summary the changes proposed from the 2004 ODV include:
o
o
¡
o
.
.
.
o
¡
Correction of date error for 69 Reclosers
Changes to the multipliers used and the assets they are applied to
Correction of data for I I kV and LV cables
Addition of assets not included in 2004 ODV, e.g. Transformer fuses, Regulators, Kiness
structure, MDls and Streetlight lCPs
Alterations to the multipliers lor Zone substations
Alterations to the values used for Zone substations power transformers
Changes to Optimisation
Changes to land values
Addition of depreciation from 20041o 2009 to correct RAB to 311312009.
We invite you to review the work undertaken and to review and re-issue your report in light of the
proposed changes. Your report would be in the form of an independent Engineers Report consistent
with the requirements of schedule C of the "Notice to Supply lnformation to the Commerce
Commission Section 53ZD of the Commerce Act 1986'. Given the tight timeframes, please advise
when you could undertake this work and your proposal for fees.
Could you please direct your response or any queries to Mr Wayne Stronach at Marlborough Lines,
phone 03 579 3813, who has reviewed the database and subsequent valuation on behalf of
OtagoNet.
Yours sincerely
Martin Walton
Ghief Executive
Otago\ Iet
L7 May 2011.
Richard Fairbairn
Sinclair Knight Merz
25 Teed Street
PO Box 9806
Newmarket
Auckland 11-49
Dear Richard
Re:
lnitial RAB: Engineers Report
Thank you for your proposal to provide an lndependent Engineers Report
establishment of OtagoNet's lnitial Regulatory Asset Base (RAB).
in relation to the
We require you to review the changes that we have made to our 2004 ODV and confirm that they
meet with the requirements of asset adjustment process outlined in Clause 2.2.L of the Commerce
Commission's lnput Methodology Determination.
These adjustments include:
r
'
r
r
Asset error adjustments
Replacement cost multipliers
Optimisation
Economic value adjustments
of an lndependent Engineers Report that meets with the
requirements specified in Schedule C of the "Notice to Supply lnformation to the Commerce
Commission Section 53ZD of the Commerce Act 1986" which was issued to the OtagoNet Joint
SKM's output would be in the form
Venture on 16th March 2011.
ln order to assist your review we would make available all the necessary information/resources and
key personnel.
Regards
Greg Buzzard
Chief Fina ncial Officer
OtagoNet’s Asset Adjustment Process
Appendix C Signed Statement by Engineer
SINCLAIR KNIGHT MERZ
PAGE 24
Sinclair Knight Merz
PO Box 9806
Tel:
+64 9 928 5500
Newmarket 1023
Fax:
+64 9 928 5501
Auckland New Zealand
Web: www.skmconsulting.com
Greg Buzzard,
Chief Financial Officer
Network Managed by PowerNet Ltd
251 Racecourse Road
PO Box 88
Invercargill
New Zealand
1 November 2011
ZP01068
Dear Sir,
Statement Regarding Independent Engineer's Report on the
Asset Adjustment Process of OtagoNet Joint Venture
Introduction
Sinclair Knight Merz Ltd (SKM) was requested by OtagoNet Joint Venture (OJV) to
undertake an independent review of proposed adjustments to OJV’s regulatory asset base as
at 31st March 2004. This review was undertaken to determine the appropriateness of the
proposed adjustments in respect of the process set out in clause 2.2.1 of the “Commerce Act
(Electricity Distribution Input Methodologies) Determination 2010”, 22 December 2010
(EDB IM).
SKM’s findings are set out in the enclosed report which has been prepared to comply with
the requirements for the Independent Engineer’s report in Schedule C of the Commerce
Commission’s “Notice to supply information to the Commerce Commission Section 53ZD of
the Commerce Act 1986 (Section 53ZD Notice) dated 16 March 2011. This letter
incorporates the signed statement required by the Section 53ZD Notice.
Confirmation of Independence and Qualifications
I, as a chartered professional engineer (as defined in section 6 of the Chartered Professional
Engineers Act 2002), can confirm that:
1) SKM has acted independently with respect to OJV and its subsidiaries and affiliates;
2) SKM has significant experience in New Zealand, Australia and the United Kingdom in
relation to the valuation of electricity networks for both regulatory and financial
reporting purposes. SKM’s review and the preparation of the report have been
undertaken by Dr Richard Fairbairn and Mr Stephen Wightman. Dr Fairbairn and Mr
Wightman are professionally qualified and experienced in the type of work concerned
and are familiar with the OJV network;
3) the report is in writing and accessible in electronic (PDF file-type) format and includes a
copy of the written instructions provided to SKM by OJV (included as Appendix B to
the enclosed report), including any subsequent variations or modifications;
Sinclair Knight Merz Limited
The SKM logo trade mark is a registered trade mark of Sinclair Knight Merz Pty Ltd.
Offices across Australia, New Zealand, UK, South East Asia, Middle East, the Pacific and Americas
OtagoNet Joint Venture
Statement Regarding Independent Engineer's Report on the Asset Adjustment Process of OtagoNet Joint Venture
1 November 2011
4) the report includes a table summarising the various asset value adjustments
corresponding to Schedule A4 of the Information Disclosure Notice Templates (please
see Appendix A to the enclosed report);
5) the report provides the minimum information for each category of asset adjustment
outlined in Table 1 of the Section 53ZD Notice, together with such additional
information sufficient to allow a reader:
i.
to understand the data, information, calculations and assumptions employed in
respect of each category of asset adjustment;
ii.
to understand the extent to which professional judgement was exercised by
SKM and the effect of that judgement in deriving the resultant asset values;
iii.
to verify the arithmetical accuracy of the asset adjustment calculations; and
6) the report may be publicly disclosed by OJV pursuant to an information disclosure
determination in relation to OJV made by the Commission under section 52P of the
Commerce Act (1986).
I can confirm that SKM is satisfied that:
i.
the ODV rules have been properly applied for assets which had not had an ODV
valuation calculated originally, as required by clause 2.2.1 of the EDB IM;
ii.
where values under Generally Accepted Accounting Practice have been relied
on, those values have been supplied or reviewed by an appropriately qualified
party (e.g. accounting practitioner); and
iii.
the report meets the requirements of Schedule C of the Section 53ZD Notice.
SIGNED on behalf of Sinclair Knight Merz Limited by:
R. Fairbairn, MIET, MIPENZ, CPEng
Sinclair Knight Merz
S. Wightman, MIPENZ
Sinclair Knight Merz
The SKM logo trade mark is a registered trade mark of Sinclair Knight Merz Pty Ltd.
page 2
OtagoNet’s Asset Adjustment Process
Appendix D Additional Information
The following information outlines a quote to construct a 30km, 33kV, mink conductor line
between Palmerston and Deep Dell.
Figure 6 illustrates the route/location of the line.
Figure 7 illustrates some aerial photographs taken along the line route.
The attached quote/letter from Otago Power Services indicates a total 2011 cost of NZ$2.8M
which, based on discussions with OJV, can be broken down into the following different route
sections:
Location Distance
2011 Cost
Palmerston to Pole 172942 4.9km
$335,808
Pole 172942 to pole 172870 6.7km
$995,463
Pole 172870 to pole 172585 11.5km
$1,030,475
Pole 172585 to Deepdell 6.8km
$472,254
29.9km $2,834,000
Total Comments
Relatively easy going but no road
frontage
Difficult access, long spans, access
roads required, rocky country
Rolling country, fair access, some
long spans Relatively easy going but no road
frontage
Equates to $95k/km The mink conductor has an equivalent cross-sectional area of 63.1mm2AL, which falls into the
2004 ODV Handbook classification of “33kV Lines – Light (<150 mm2AL)” and has a standard cost
of $45k/km.
Statics New Zealand publishes a number of inflationary cost indices. Figure 5 illustrates two
relevant indices over the 2004-2011 period and which infer a conservative rugged multiplier of:
$95k/km / 1.31 / $45k/km = 1.6
A factor associated with “economies of scale” has not been included on the basis that the line
length is considerable coupled with the fact that the contractor’s quote includes a number of
exclusions.
SINCLAIR KNIGHT MERZ
PAGE 25
OtagoNet’s Asset Adjustment Process
No
0
1
2
3
4
5
6
7
Year
2004
2005
2006
2007
2008
2009
2010
2011
CPI (All Groups Index SE9A)
Δ Year
Δ Cummulative
PPI (Construction)
Δ Year Δ Cummulative
1.000
1.000
1.000
1.000
1.028
1.028
1.069
1.069
1.033
1.062
1.062
1.135
1.025
1.088
1.053
1.195
1.034
1.125
1.052
1.257
1.030
1.159
1.030
1.295
1.020
1.182
0.998
1.292
1.045
1.236
1.013
1.310
1.400
1.300
1.200
1.100
1.000
CPI (All Groups Index SE9A)
0.900
PPI (Construction)
0.800
2004
2005
2006
2007
2008
2009
2010
2011
Year
„
Figure 5 Statistic New Zealand: Relevant cost escalation indices
SINCLAIR KNIGHT MERZ
PAGE 26
OtagoNet’s Asset Adjustment Process
„
Figure 6 Palmerston to Deepdell: 33kV line location and OJV multiplier map
SINCLAIR KNIGHT MERZ
PAGE 27
OtagoNet’s Asset Adjustment Process
„
SINCLAIR KNIGHT MERZ
Figure 7 Palmerston to Deepdell:
Typical difficult rugged terrain
PAGE 28
Marlborough Lines Limited
1 Alfred Street,
PO Box 144, Blenheim 7240
New Zealand
Telephone 0-3-577 7007
Facsimile 0-3-579 3806
Email info@linesmarl.co.nz
12 October 2011
Otago Power Services Quotation Ref: 203398.7
OtagoNet Limited
PO Box 1586
INVERCARGILL 9840
ATTENTION: Terry Jones
Dear Mr Jones
33kV Overhead Line- Palmerston to Deep Dell Substation
Thank you for your enquiry regarding an estimate of costs for construction of a three phase 33kV
overhead line.
As requested we have undertaken an estimate of the cost for construction of 29.9km of line from
Palmerston to Deep Dell. In doing this we have based our pricing on the current line construction,
but on the basis that:

It is a ‘green fields’ site

The conductor required is ‘Mink’

All poles will be Treated Pine and wind stays be applied to suit current design requirements

Where the requirement is to drill and blow holes we have allowed to do this once only at each
hole site. Due to the conditions on site it may take more than once to get the hole to depth.
Our quotation for this construction work is $2,834,302.00 Plus GST.
The breakdown of our costs is:
Materials
Labour
Plant/ Vehicles
Creditors/Subcontractors
$
727,194.00
$ 1,138,926.00
$
163,052.00
$
805,130.00
TOTAL (excluding GST)
$ 2,834,302.00
Please note that we have allowed for all civil work required within our cost. This includes an
allowance for the establishment of tracks to some sites but depending on landowner requirements
this component of the cost will need to be considered may alter.
Excluded from our costs are the following.

Surveying and pegging the line route and pole sites.

The cost of establishment to site.

Establishment of any easements or agreements and any associated compensation payments.

Any alterations to existing lines crossing any proposed route or the cost of shutdowns
associated with these crossings.

Any Tree felling or clearing.
Our estimate detailed above allows for all work to be carried out at one time. Should it be expected
that parts of this job be done at separate times then additional costs will be incurred.
If you require any further details we would be pleased to assist.
Yours sincerely
Steve McLauchlan
General Manager OPSL