Leveraging Network Utility Asset Management Practices for Regulatory Purposes Appendices ...

234 Pages·2009·3.71 MB·English

Leveraging Network Utility Asset Management Practices for
Regulatory Purposes

Appendices

November 2009

Disclaimer:
The views expressed in this report are those of KEMA, Inc., and do not necessarily represent
he views of, and should not be attributed to, the Ontario Energy Board,
any individual Board Member, or OEB staff.
Table of Contents
Table of Contents
Synopsis of International Markets Studied........................................................................................1
1. Appendix A: Australia..............................................................................................................1-1
1.1 Characteristics of Utilities Affected..........................................................................1-2
1.1.1 Number of Companies..............................................................................1-2
1.1.2 Geographic Areas Served.........................................................................1-3
1.1.3 Key Technical and Financial Statistics per Utility....................................1-8
1.1.4 Ownership Structures..............................................................................1-11
1.2 Assessment of Utility Investment Plans..................................................................1-13
1.3 Regulatory Information Requirements....................................................................1-17
1.4 Explicit Asset Management Requirements.............................................................1-19
1.5 Relevant Regulatory Instruments............................................................................1-21
1.5.1 Laws and Regulations.............................................................................1-21
1.5.2 Codes, Rules, Filing Guidelines/Requirements......................................1-23
1.5.3 Regulatory Standards, Procedures or Guidelines....................................1-29
1.6 Regulatory Guidance to Utility Companies............................................................1-31
1.6.1 Guidelines for the Preparation of Asset Management Plans...................1-31
1.6.2 Investment Plan Requirements for Regulatory Submissions by Utilities1-32
1.7 Lessons Learned and Future Areas of Focus...........................................................1-42
2. Appendix B: Germany..............................................................................................................2-1
2.1 Characteristics of Utilities Affected..........................................................................2-2
2.1.1 Number of Companies..............................................................................2-3
2.1.2 Geographic Areas Served.........................................................................2-5
2.1.3 Key Technical Statistics for German Network Utilities...........................2-8
2.1.4 Ownership Structures..............................................................................2-13
2.2 Assessment of Utility Investment Plans..................................................................2-14
2.2.1 General Regulatory Process....................................................................2-16
2.2.2 Investment Budgets for Transmission and Distribution..........................2-18
2.2.3 Asset Replacement Expenditure (REPEX).............................................2-22
2.2.4 Quantity Adjustment Term (EF) for Distribution Electricity and Gas...2-23
t
2.2.5 Investment Supplement for Distribution Gas and Electricity.................2-25
2.3 Regulatory Information Requirements....................................................................2-26
2.3.1 Formal Data Collection Requirements – Price Control Reviews............2-26
2.4 Explicit Asset Management Requirements.............................................................2-29
2.5 Relevant Regulatory Instruments............................................................................2-31
2.5.1 Laws and Regulations.............................................................................2-31
2.5.2 Codes, Rules, Filing Guidelines/Requirements......................................2-33
2.5.3 Regulatory Standards, Procedures or Guidelines....................................2-34
2.6 Regulatory Guidance to Utility Companies............................................................2-34
2.6.1 Guidelines for the Preparation of Asset Management Plans...................2-34
2.6.2 Investment Plan Requirements for Regulatory Submissions by Utilities2-35
2.7 Lessons Learned and Future Areas of Focus...........................................................2-36
3. Appendix C: Great Britain.......................................................................................................3-1
3.1 Characteristics of Utilities Affected..........................................................................3-2
3.1.1 Number of Companies..............................................................................3-2
3.1.2 Geographic Areas Served.........................................................................3-3
3.1.3 Key Technical and Financial Statistics per Utility....................................3-7
3.1.4 Ownership Structures..............................................................................3-17
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3.2 Assessment of Utility Investment Plans..................................................................3-20
3.2.1 Overview of Ofgem’s Approach to Assessment of Utility Investment Plans
3-21
3.2.2 Detail of Ofgem’s Approach to Assessment of Utility Investment Plans3-24
3.3 Regulatory Information Requirements....................................................................3-33
3.3.1 Formal Requirements – Price Control Reviews......................................3-33
3.3.2 Formal Requirements – Annual Regulatory Reporting..........................3-35
3.3.3 Other Information Gathering..................................................................3-37
3.4 Explicit Asset Management Requirements.............................................................3-37
3.4.1 Adoption of PAS 55 Aligned Asset Management Practices...................3-38
3.4.2 Adoption of Explicit Output Measures...................................................3-38
3.5 Relevant Regulatory Instruments............................................................................3-41
3.5.1 Laws and Regulations.............................................................................3-41
3.5.2 Codes, Rules, Filing Guidelines/Requirements......................................3-42
3.5.3 Regulatory Standards, Procedures or Guidelines....................................3-42
3.6 Regulatory Guidance to Utility Companies............................................................3-43
3.6.1 Guidelines for the Preparation of Asset Management Plans...................3-43
3.6.2 Investment Plan Requirements for Regulatory Submissions by Utilities3-45
3.7 Lessons Learned and Future Areas of Focus...........................................................3-49
4. Appendix D: New Zealand.......................................................................................................4-1
4.1 Characteristics of Utilities Affected..........................................................................4-1
4.1.1 Number of Companies..............................................................................4-1
4.1.2 Geographic Areas Served.........................................................................4-3
4.1.3 Key Technical and Financial Statistics.....................................................4-6
4.1.4 Ownership Structures................................................................................4-8
4.2 Assessment of Utility Investment Plans..................................................................4-10
4.2.1 Overview of the Process.........................................................................4-10
4.2.2 Current Assessment Process...................................................................4-12
4.2.3 Current Assessment Process...................................................................4-23
4.3 Regulatory Information Requirements....................................................................4-29
4.4 Explicit Asset Management Requirements.............................................................4-32
4.5 Relevant Regulatory Instruments............................................................................4-34
4.5.1 Laws and Regulations.............................................................................4-34
4.5.2 Relevant Legislation...............................................................................4-36
4.5.3 Codes, Rules, Filing Guidelines/Requirements......................................4-38
4.5.4 Regulatory Standards, Procedures or Guidelines....................................4-40
4.6 Regulatory Guidance to Utility Companies............................................................4-42
4.6.1 Guidelines for the Preparation of Asset Management Plans...................4-42
4.6.2 Investment Plan Requirements for Regulatory Submissions by Utilities4-43
4.7 Summary and Lessons Learned...............................................................................4-46
5. Appendix E: United States.......................................................................................................5-1
5.1 Characteristics of Utilities Affected..........................................................................5-3
5.1.1 Number of Companies..............................................................................5-6
5.1.2 Geographic Areas Served.........................................................................5-8
5.2 Assessment of Utility Investment Plans..................................................................5-10
5.2.1 Overview of the Process.........................................................................5-10
5.3 Regulatory Information Requirements....................................................................5-13
5.4 Explicit Asset Management Requirements.............................................................5-15
5.5 Relevant Regulatory Instruments............................................................................5-15
5.5.1 Laws and Regulations.............................................................................5-15
5.5.2 Codes, Rules, Fling Guidelines/Requirements.......................................5-16
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5.5.3 Regulatory Standards, Procedures or Guidelines....................................5-17
5.6 Regulatory Guidance to Utility Companies............................................................5-18
5.6.1 Guidelines for the Preparation of Asset Management Plans...................5-18
5.6.2 Investment Plan Requirements for Regulatory Submissions by Utilities5-18
5.7 Lessons Learned and Future Areas of Focus...........................................................5-20
6. Appendix F: British Columbia.................................................................................................6-1
6.1 Characteristics of Utilities Affected..........................................................................6-2
6.1.1 Number of Companies..............................................................................6-5
6.1.2 Geographic Areas Served.........................................................................6-6
6.2 Assessment of Utility Investment Plans....................................................................6-9
6.3 Regulatory Information Requirements....................................................................6-14
6.4 Explicit Asset Management Requirements.............................................................6-16
6.5 Relevant Regulatory Instruments............................................................................6-17
6.5.1 Laws and Regulations.............................................................................6-18
6.5.2 Codes, Rules, Filing Guidelines/Requirements......................................6-19
6.5.3 Regulatory Standards, Procedures or Guidelines....................................6-20
6.6 Regulatory Guidance to Utility Companies............................................................6-20
6.6.1 Guidelines for the Preparation of Asset Management Plans...................6-20
6.6.2 Investment Plan Requirements for Regulatory Submissions by Utilities6-22
6.7 Lessons Learned and Future Areas of Focus...........................................................6-26

List of Figures

Figure 1: Transmission Networks in the AER Region.........................................................................1-4
Figure 2: Electricity Distribution Network Operators in the AER Region..........................................1-5
Figure 3: Energy Infrastructure in Western Australia..........................................................................1-6
Figure 4: Major Gas Transmission Pipelines in Australia...................................................................1-7
Figure 5: Gas Distribution Network in Australia.................................................................................1-8
Figure 6: Current Forms of Incentive Regulation for Distribution Companies.................................1-25
Figure 7: Submission Guidance for Forecast Commentary on Capital Expenditure.........................1-33
Figure 8: Submission Guidelines for Forecast Capex by Asset Class...............................................1-33
Figure 9: Submission Guidelines for Forecast Capex by Asset Category.........................................1-34
Figure 10: Capex Template for Annual Reporting............................................................................1-37
Figure 11: Template for Asset Ageing Schedule for Distributors.....................................................1-38
Figure 12: Pro Forma for Forecast Capital Expenditure by Asset Class...........................................1-40
Figure 13: Pro Forma for Forecast Capital Expenditure by Reason..................................................1-41
Figure 14: Market Shares in the German Gas Market.........................................................................2-2
Figure 15: German Gas Market Structure............................................................................................2-4
Figure 16: Power Transmission Areas Served (Electricity).................................................................2-5
Figure 17: Distribution Network..........................................................................................................2-6
Figure 18: Gas Market Structure by a) market areas; b) T&D system operators.................................2-7
Figure 19: Gas Pipelines in Germany..................................................................................................2-8
Figure 20: Overview of Transmission Network (Electricity)..............................................................2-9
Figure 21: Ownership Structure (Distribution for Electricity and Gas).............................................2-14
Figure 22: Time Schedule for Data Collection for Regulatory Purposes..........................................2-26
Figure 23: GB Distribution Network Owner (DNO) Geographic Areas and Ownership....................3-4
Figure 24: GB Transmission Network.................................................................................................3-5
Figure 25: GB Gas Transmission Network..........................................................................................3-6
Figure 26: GB Gas Distribution Networks Geographic Areas and Ownership...................................3-7
Figure 27: Headline Statistics for the 3 GB Transmission Owner (TO) Networks...........................3-12
Figure 28: Outturn Daily GB Gas Demand and Relation to Cold/Warm Weather Demands............3-17
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Figure 29: GB Network Utility Price Control Review Process Example – GB DPCR5 Process......3-28
Figure 30: Levels of Bilateral Meetings/Workshops.........................................................................3-33
Figure 31: Proposed Output Measures put forward by GB Network Utilities...................................3-39
Figure 32: Ofgem’s Indicated Examples of Potential Output Measures for GB DNOs....................3-41
Figure 33: Overview of the Nature of Regulatory Settlements..........................................................3-44
Figure 34: Summary of DPCR5 BPQ Tables Issued by Ofgem for Completion by all GB DNOs...3-46
Figure 35: DPCR5 BPQ Table NL2 – Total Network Costs (Source: Ofgem).................................3-47
Figure 36: DPCR5 BPQ Table NL3 – Forecast Volume of Condition Based Asset Replacement...3-48
Figure 37: Electricity Distribution Businesses in New Zealand..........................................................4-2
Figure 38: Map of the New Zealand National Grid.............................................................................4-4
Figure 39: New Zealand Electricity Distribution Businesses..............................................................4-5
Figure 40: Gas Pipelines Companies in New Zealand.........................................................................4-6
Figure 41: Actions taken after a Threshold Breach...........................................................................4-19
Figure 42: Planned Timetable for the Reset Process.........................................................................4-20
Figure 43: Role of Input Methodologies in Amended Commerce Act..............................................4-25
Figure 44: Assessment Management Form for Distributors..............................................................4-43
Figure 45: FS2 Regulatory Asset and Financing Statement..............................................................4-44
Figure 46: MP2 Performance Measures.............................................................................................4-45

List of Tables

Table 1: Transmission and Distribution Companies in Australia........................................................1-2
Table 2: Transmission Pipeline and Distribution Companies..............................................................1-3
Table 3: Major Transmission Companies in Australia........................................................................1-9
Table 4: Major Distribution Companies in Australia...........................................................................1-9
Table 5: Major Regulated Gas Transmission Companies in Australia..............................................1-10
Table 6: Major Gas Distribution Companies in Australia.................................................................1-11
Table 7: Ownership of Electricity Transmission Companies............................................................1-12
Table 9: Ownership of Electricity Distribution Networks.................................................................1-12
Table 10: Ownership of Regulated Gas Transmission Networks......................................................1-13
Table 11: Ownership of Regulated Gas Distribution Networks........................................................1-13
Table 12: Latest Dates for Transmission and Distribution Determinations by AER.........................1-26
Table 13: Timetable for Access Arrangement (Source: Draft Access Arrangement Guideline).......1-27
Table 14: Timetable for Electricity Access Arrangements in Western Australia..............................1-28
Table 15: Timetable for Gas Access Arrangements in Western Australia........................................1-29
Table 16: Number of Electricity Transmission & Distribution System Operators in Germany..........2-3
Table 17: Number of Gas Transmission & Distribution System Operators in Germany.....................2-5
Table 18: Network Length (Germany).................................................................................................2-9
Table 19: Key Figures of German Power Transmission Companies.................................................2-10
Table 20: Key Figures of German Gas Transmission & Distribution Companies.............................2-11
Table 21: Number of Customers per Utility in Germany (Electricity)..............................................2-13
Table 22: Number of Customers per Utility in Germany (Gas).........................................................2-13
Table 23 Criteria that Need to be Met for Quality Adjustment Criteria............................................2-24
Table 24: Excerpt from the Data Collection Template (Betriebsabrechnungsbogen).......................2-27
Table 25: Worksheet of Data Required by German Regulator..........................................................2-36
Table 26: GB Electricity Networks – Headline Statistics....................................................................3-8
Table 27: Customer Numbers and Units Distributed of the GB DNOs by Voltage Level..................3-8
Table 28: Key Technical Characteristics of the GB DNOs.................................................................3-9
Table 29: Network Circuit Assets of the GB DNOs by Voltage Level.............................................3-10
Table 30: Capex, Opex and Derived Revenue Allowance for GB DNOs for 2005/06 – 2009/10.....3-10
Table 31: Regulatory Asset Values of the GB DNOs........................................................................3-11
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Table 32: Key Technical Characteristics of the GB Electricity Transmission Networks..................3-12
Table 33: Capex, Opex and Derived Revenue Allowance for GB TOs for 2007/08 – 2011/12........3-13
Table 34: Regulatory Asset Values of the GB TOs...........................................................................3-13
Table 35: Key Facts and Figures for National Grid Gas Networks...................................................3-14
Table 36: Key Facts and Figures for Northern Gas Networks...........................................................3-15
Table 37: Key Facts and Figures for Scotia Gas Networks...............................................................3-15
Table 38: Key Facts and Figures for Wales & West Utilities............................................................3-15
Table 39: Capex, Opex and Derived Revenue Allowance for GB Gas DNOs 2008/09–12/13.........3-16
Table 40: Capex, Opex and Derived Revenue Allowance for GB Gas TO 2007/08 –11/12.............3-17
Table 41: GB Network Utility Ownership.........................................................................................3-18
Table 42: Electricity Distribution Statistics.........................................................................................4-7
Table 43 Gas Transmission Statistics .................................................................................................4-8
Table 44 Gas Distribution Statistics.....................................................................................................4-8
Table 45: Ownership of Electricity Distribution Companies...............................................................4-9
Table 46: Ownership of Gas Distribution Companies.......................................................................4-10
Table 47: X Factors for Network Businesses.....................................................................................4-18
Table 48: Number of Threshold Breaches.........................................................................................4-20
Table 49: Process for Developing Input Methodologies....................................................................4-26
Table 50: Gas Pipelines Subject to Regulation..................................................................................4-29

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Synopsis of International Markets Studied
Synopsis of International Markets Studied
This appendices document is a stand-alone document which supports the KEMA report entitled
“Leveraging Network Utility Asset Management Practices for Regulatory Purpose” produced by
KEMA for the Ontario Energy Board (OEB) staff. It provides extensive material reviewing
international regulatory practices for markets in Australia, Germany, Great Britain, New Zealand, the
US and Canada, encompassing:
1) Characteristics of utilities affected;
2) Assessment of utility investment plans;
3) Regulatory information requirements;
4) Explicit asset management requirements;
5) Relevant regulatory instruments;
6) Regulatory guidance to utility companies; and
7) Lessons learned and future areas of focus.
To aid the reader in choosing which markets to review in more depth as support or otherwise to
reading the main report, we provide a short synopsis of the key features of each market and their
adopted regulatory approaches to review of network utility investment plans and asset management
practices below.
Australia
The examination of the use of asset management principles by Australian economic regulators has
looked at the requirements from both the Australian Energy Regulator (AER), which covers the
majority of the country, and the Economic Regulation Authority, which covers Western Australia.
The AER was only created on 1 July 2005 and while they have made a number of transmission
determinations, no electricity distribution determinations have been finalized or gas determinations
yet undertaken with many utilities still currently subject to state regulation. However, the AER’s
processes for regulation are well specified in national rules and guideline documents and show a
consistent approach to regulation across utilities where appropriate and allowed under legislation.
Most of the regulated utilities in Australia are of a significant size, which justifies a rigorous
regulatory process to set revenues. This typically has a process that includes pre consultation,
submission by the utilities open to public submissions, draft decisions, and final decision. The process
normally last around a year after pre-consultation and a price control is usually established for a 5
year period. Third party review of investment plans is a key part of this process in allowing the
regulator to make a draft and final decision and these expert reports will be published and normally
include an examination of asset management plans.
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Synopsis of International Markets Studied
In Australia, there is no particular asset management standard that has been adopted and it seems
unlikely that there will be one in the near future. While some utilities have adopted the PAS 55
standard, others believe it to be inappropriate. The AER does not provide any particular standard that
needs to be followed. Some companies also need to comply with jurisdictional policies for asset
management, which may govern the policies they adopt. The ERA also do not specify a particular
standard but do make reference to the International Infrastructure Management Manual – Version 3.0
as providing a best practice framework for the management of infrastructure assets for small
electricity and gas licenses.
Germany
Germany has a small number of large electricity and gas network utilities and a very large number of
small, typically municipal utilities. Network utility regulation is driven by legislation and applies a
largely formulaic approach to setting revenue allowances. The exact form of regulation varies
dependent on the size of the network utility; with the larger companies subject to more rigorous
assessment. However, energy regulation in Germany does not yet place a high emphasis on review of
asset management and there are no explicit requirements for or assessments of network utility asset
management practices.
Great Britain
Great Britain consists of a limited number of large network utilities. A number of these own a mixture
of transmission and distribution networks and/or electricity and gas networks – some also own
generation and/or supply businesses; though these are ring-fenced from network interests. Network
utility regulation is highly evolved in Great Britain having been first adopted in 1990 and
encompasses a wide range of regulatory tools and methodologies. Regulatory review of network
utilities’ investment plans is extensive and detailed with well developed information requirements and
submission assessments and annual reporting processes.
In recent years, due to the context of aging infrastructure and rapidly escalating non-load related
(principally asset replacement) expenditures by network utilities, the Great Britain regulator Ofgem
has increasingly and intensively reviewed network utility asset management practices to seek to
determine the efficiency, sustainability and thus, validity of network utility investment plans.
Furthermore, they have implicitly required network utilities to adopt PAS 55 compliant asset
management practices and are the first to seek to implement output measures based regulation of
network utility investment plans and underlying asset management within the ongoing Great Britain
Distribution Control Price Review 5.
Ofgem is commonly regarded in international regulatory circles as applying leading regulatory
practices in relation to review of network utility asset management and derived network investment
plans.
2
Synopsis of International Markets Studied
New Zealand
New Zealand has an unusually high number of electricity distribution companies (29) for a relatively
small country. All the other gas and electricity network businesses are much more concentrated with
between one and four main businesses in each area. The regulatory approach is also different from
that observed in the comparator countries with a process of targeted price controls, where companies
are not automatically subject to controls, but become potentially subject to controls if they breach one
or more performance thresholds.
New legislation was passed in 2008 that recognized the diverse set of distribution utilities in New
Zealand in terms of size and ownership structure. Small consumer owned distribution businesses will
only be subject to information disclosure, while the larger/shareholder owned companies face
default/customized price-quality paths in addition to information disclosure. The current information
disclosure requirements are quite extensive with the annual disclosures expected to be the primary
data used in setting future default price-quality paths. These disclosures also require all distribution
companies to produce annual asset management plans with clear guidelines as to the information that
is expected to be included.
While asset management plans are clearly needed for all businesses (either explicitly or as part of an
investment plan review) there are no specific asset management standards or processes that are
enforced by the Commerce Commission (which regulates all the network businesses) or the
Electricity Commission (which jointly regulates the electricity transmission business).
United States (US)
The US market is regulated by a mix of federal, state, and local entities depending upon jurisdictions
and the utility services provided. The Federal Energy Regulatory Commission (FERC) regulates the
interstate transmission of natural gas, natural gas pipelines, natural gas storage, liquefied natural gas
facility construction, all electricity wholesale generation, wholesale power and wholesale transmission
services that are not part of a unified vertical utility (with the exception of Texas).
State Public Utility Commissions have jurisdiction over intrastate natural gas pipelines and their
associated local distribution systems and regulate vertically integrated electric utilities’ generation,
transmission, and distribution. In states where electricity market restructuring has unbundled
transmission from distribution, the state Commissions retain jurisdiction over the utility distribution
function. In addition, some states regulate certain aspects of municipal utilities and/or co-ops,
including rates. Municipal Utilities (Munis) are public power utilities that typically operate as natural
monopolies for local electricity and/or natural gas distribution to end-users in their municipality.
Munis are governed by elected public officials, such as city councils or by boards of appointed or
elected individuals, and are non-profit organizations that typically operate as a division of the local
city government and are not generally regulated by the state. Electric Cooperatives are private,
independent electric utilities owned by the members they serve and run by a democratically elected
board.
3
Synopsis of International Markets Studied
The basic standard of rate regulation in the US is the revenue requirements standard, which provides
revenues that allow a utility to cover operating costs and earn a reasonable rate of return on property
devoted to the business. The determination of required revenue involves the determination of three
major items: 1) allowable operating costs; 2) net value of the investment in property; and 3) a fair rate
of return. To determine a rate of return on rate base that is appropriate for the overall cost of capital,
the Commission first identifies the components of the utilities capital structure. Capital programs must
typically be documented in the filing package to be included in the capital structure. This
documentation must include a description of the program, costs and benefits. While individual capital
programs (not overall asset management plans) are scrutinized for prudence during the rate setting
process, no explicit asset management requirements are involved in the analysis.
Canada (British Columbia)
The British Columbia (BC) electricity transmission and distribution network is dominated by a
commercially-owned Crown operation and its separate transmission operator. This company serves
approximately 95% of the province’s population and 1.7 million customers. The remaining 5% of the
population is served by five investor-owned utilities and six municipal utilities. The transmission
operator was incorporated in May 2003 as a new Crown company in order to maintain, operate and
plan transmission assets under the terms of an Asset Management and Maintenance Agreement.
The BC natural gas industry is characterized by transmission and distribution monopolies with a
competitive supply market. The BC natural gas industry is not vertically integrated and transmission
and distribution services may or may not be provided by the same company. BC exports
approximately half of its natural gas production. The British Columbia Utilities Commission (BCUC)
regulates the transmission and distribution of natural gas, but does not regulate the competitive market
for natural gas.
The BCUC reviews and approves rates, return on equity, operation and maintenance expenditures,
and capital investments of electricity and natural gas utilities. The BCUC has traditionally used a cost
of service analysis to regulate utility rates and investment plans; however, they are continuing to
introduce incentive regulation in the form of performance based rates.

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