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• Appendix B: Valuing

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• Handbook for OD Valuation 1999
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• Electricity Line Companies

• ELB Maximum Costs
• ELB Asset Types
• Overhead Lines
• Underground Cables
• Zone Substations
• Distribution Substations
• Distribution Transformers
• Streetlighting Mains
• System Control Facilities
• Communication Facilities
• Stores and Spares
• Easements
• ELB Maximum Lives
• Refurbishment
• Lives for Particular Asset Types
• Overhead Lines
• Zone Substations
• Indoor Distribution Switchgear
• Distribution Transformers
• Transmission Lines
• Valuation of the DC Link
• Local ELB Maximum Costs and Lives
• Transpower Maximum Costs and Lives
• Substations by Standard Size
• Substations (Standard Sizes) by Indoor/Outdoor
• Transformers
• Oil Containment
• Switchgear
• Reactive Power Plant
• Transmission Line

B.1 This appendix gives the methodology that should be applied in using replacement costs to value the system fixed assets of ELBs. The appendix also contains Table B.1 (for local ELBs), and Tables B.2-B.8 (for Transpower), which specify the maximum replacement costs and the maximum asset lives that are not to be exceeded for the purpose of assessing the depreciated replacement costs of ELB system fixed assets.

ELB Maximum Costs

B.2 Maximum replacement costs are shown in Table B.1 (for local ELBs), and Tables B.2-B.8 (for Transpower). These values are maxima and for valuation purposes are not to be exceeded.

B.3 The values in the tables are based on installed costs for Modern Equivalent Assets (MEA). They have been based on industry best practice and competitive pricing and include the following elements:

1. costs of materials delivered to store;
2. direct labour including indirect costs (ACC, holiday pay, sick leave, training, supervision, etc);
3. transport and plant costs for delivery and erection; and
4. on-cost incorporating business administration, design, construction supervision, and project management costs.

The costs of land use consents, easements, compensation are excluded. GST is excluded but other taxes and duties incurred in the construction of the assets are included.

B.4 For equipment used in adverse conditions multipliers can be applied to the values as specified in the tables, but only subject to conditions as specified in B.9, B.14 and B.15. To ensure appropriate application of the cost multipliers, a record of their application should be kept for scrutiny and approval by the Valuer. This information must include:

1. multiplier used;
2. quantity of item to which it is applied
3. the specific conditions justifying the use of the multiplier.

B.5 Where the nature of an asset in service differs from any in the tables, an engineering assessment of the replacement cost can be made, subject to the approval of the Valuer. Before such an assessment is made, the Valuer must be satisfied that there is justification for not selecting an MEA listed in the tables. This assessment must be recorded in the valuation report.

B.6 In assessing costs for assets not listed in the tables, or where the Valuer's assessed value is less than the maximum listed cost, the cost elements set out in B.3 should be recorded. Any costs so determined should be based on competitive pricing estimates, and should be commensurate with a significant scale of construction (within the limits of available resources), not piecemeal additions.

ELB Asset Types

B.7 In the following sections additional information is given in relation to the valuation of certain types of asset used by ELBs.

Overhead Lines

B.8 Local ELBs: The maximum overhead 33kV and 11kV line costs in Table B.1 have been based on three phase construction in a rural environment utilising 70-80m spans. For lines of these voltages in other environments, maximum costs can be established by applying the following multipliers:

where remote areas are those which are situated more than 75 km from the nearest works depot of either the ELB or a line construction contractor; rugged terrain includes those areas where normal line operating vehicles and plant cannot be used and where it is necessary to use helicopters, tracked vehicles or other special plant.

B.9 Transpower: The maximum overhead line costs for AC transmission lines in Table B.8 have been based on nominal average span lengths of 165m and 375m for pole and tower lines respectively, in flat rural land with an assumption that the work is carried out 50km from the nearest urban area. There is no adjustment for further remoteness. Costs for overhead lines in Table B.8 in other terrain can be established by applying the following multipliers:

B.10 The maximum costs in Table B.1 for circuits of lower voltage erected on higher voltage lines (i.e. underbuilt) have been based on the marginal cost of additional materials and installation.

B.11 Costs for special configurations (e.g. composite 33kV/11kV/LV lines and aerial bundled conductor construction) and for construction at other voltages (e.g. 110kV, 66kV or 22kV) should be determined by the Valuer in accordance with clause B.6.

Underground Cables

B.12 Underground cables should be valued on the basis of replacement cost with underground cables in determining RC or DRC, but this should be reviewed as part of the optimisation process (see Appendix C).

B.13 The maximum underground cable costs in Table B.1 have been based on laying in an urban area with developed infrastructure.

B.14 Cables laid in business districts require special consideration, and a multiplier of 1.15 or 1.25 times the costs of Table B.1 can be applied. This multiplier takes into account the greater vehicular and pedestrian traffic, restricted access times, special reticulation requirements and areas requiring substantial reinstatement.

B.15 For cables laid in rocky ground a multiplier of 1.5 to 2.0 times the costs of Table B.1 can be applied.

B.16 The Table B.1 cost of double circuit (viz. two) cables including cables of differing voltages laid together incorporates the marginal cost of the extra cable and laying in a joint trench. Where more than two cables of the same voltage are laid together the replacement cost should be determined in accordance with this principle and clause B.6.

B.17 The cost of cables intended to operate at voltages other than 33kV, 11kV, LV and submarine cables should be determined by the Valuer in accordance with clause B.6.

B.18 The standard replacement cost of all 33kV and distribution cables should be based on unarmoured XLPE cables being the deemed MEA. The replacement cost of LV cables should be based on PVC or XLPE unarmoured construction.

Zone Substations

B.19 The replacement costs for zone substations should be based on cost effective configuration with single bus distribution switchgear unless there are compelling reasons for departure from this. The replacement costs should be compiled by the Valuer in accordance with clause B.6 and should be presented in the categories set out in Table B.1 (for local ELBs) and Tables B.2 and B.3 (for Transpower).

B.20 The replacement cost of substation buildings should be included in the substation valuation, but the land value should be treated separately.

Distribution Substations

B.21 Distribution substations should be valued without distribution transformers, and the land value should also be treated separately. The replacement cost of any enclosing structure should, however, be included.

B.22 The replacement cost of pole mounted substations should include the cost of steelwork, extra poles if applicable, LV fuses and earthing. In the case of ground mounted or similar transformer/substation units the relevant cost is the cost of the additional equipment which is added to the transformer excluding distribution switchgear.

Distribution Transformers

B.23 Replacement costs for distribution transformers are given in Table B.1 (for local ELBs) for currently available distribution transformer sizes of New Zealand manufacture. Replacement costs for distribution transformers for Transpower are given in Table B.4. Where other sizes are in service, the cost of the next largest available size should be used for valuation purposes.

Streetlighting Mains

B.24 For valuation purposes the MEA of streetlighting mains can be a photo-electric cell included as an integral part of the lantern where the streetlights are in close proximity to existing LV reticulation. Where LV reticulation is not available, streetlighting mains can be valued as a stand alone 2 core cable.

System Control Facilities

B.25 All system control facilities associated with a system control centre should be valued together as a master station. The value of remote units should be incorporated in the value of the appropriate zone substation.

Communication Facilities

B.26 Terminal facilities should be valued as a master station. The value of remote units should be incorporated in the value of the appropriate zone substation.

Stores and Spares

B.27 Only a reasonable quantity of stores and spares should be valued as part of the system fixed assets (consistent with the Avoidable Cost Allocation Methodology (ACAM) rules). Any excess stores and supplies (including spares for assets no longer in service) should be valued at Net Realisable Value (NRV) and the valuation not included with that of the line business, but with that of `other businesses' owned by the ELB.

Easements

B.28 The "existing works" provisions in the Electricity Act 1992 protect the ownership of lines (both ELBs and Transpower) constructed or commenced prior to January 1993. They also provide for line owner access to the land the works are on, to inspect, maintain and operate them. Under previous legislation the Crown and ESAs had virtually unlimited rights of access to land to build works. Easements were not required. Easements are not explicitly required by the Electricity Act 1992, but are expected to be the normal means of registering rights.

B.29 Only easement rights obtained and registered against a land title after after 1 January 1993, (or in the case of Transpower, additionally between 1 January 1988 and 1 January 1993), and paid for, can be valued provided that the sum paid has not already been expensed.

ELB Maximum Lives

B.30 Maximum asset lives are given in Table B.1 (for local ELBs) and Tables B.2-B.8 (for Transpower). These lives are maxima and are not to be exceeded for the purpose of determining TLs of assets, except as provided for in B.34.

B.31 Where an asset is made up of a number of items that have differing lives, a weighted average life is to be determined. This assessment should be recorded in the valuation report.

B.32 Lives of assets not listed in Table B.1 (for local ELBs) and Tables B.2-B.8 (for Transpower) should be established on a comparable basis with those in the tables. Such lives should not exceed the maximum lives for comparable assets, should be subject to the approval of the Valuer, and should be verified and documented. Assessment of the TL of such assets must include:

1. examination of asset service records;
2. discussion with maintenance personnel; and
3. physical inspection.

B.33 TLs less than the maxima of Table B.1 (for local ELBs) and Tables B.2-B8 (for Transpower) should be assigned when the Valuer considers this appropriate. Circumstances when this could be appropriate include:

1. assets in coastal environments;
2. assets subject to particularly high use or high fault levels or showing systematic premature retirement due to failure;
3. assets which have been poorly maintained.

TLs so assigned should, however, never be less than 50 percent of the relevant Table B.1 maximum.

B.34 The TL of certain assets, as specified below, may be extended by the Valuer where specified conditions have been satisfactorily met. These are:

B.35 In order to justify the extension of TLs as provided in B.34, the following information should be available to the Valuer for scrutiny:

1. an age profile of the assets in the category concerned, showing the original population, survival population in each year and number of failures in each year, sufficient to demonstrate that the asset category concerned warrants on average the application of life extension; and/or
2. information on the standard or specification used in the purchase of the asset or that class of asset sufficient to demonstrate modern or special technology that would warrant the application of a longer life.

B.36 In addition the following information should be available:

1. a maintenance policy statement indicating the nature, scope and regularity of maintenance work carried out on the asset or class of asset since its installation, sufficient to support the claim for a longer life;
2. maintenance and test records of the asset (or, where the life extension relates to a class of asset, representative records for that class of asset) sufficient to demonstrate that the agreed maintenance policies have been applied over the life of the asset; and
3. where relevant (e.g. for transformers), information on the loading applied to the asset or class of asset over time, demonstrating circumstances that would warrant a life extension.

Refurbishment

B.37 Refurbishment is classed as work done on the asset (or set of assets) that results in a material extension of its service life beyond its normal TL. This is in distinction to maintenance work which is done to ensure that an asset is able to perform its designated function for its normal TL. Accumulated maintenance should not be considered as refurbishment.

B.38 When an asset has been refurbished, the Valuer should assign an RL, effective from the time of refurbishment, but this RL should not be greater than the maximum TL as specified in Table B.1 (for local ELBs) and Tables B.2-B8 (for Transpower).

Lives for Particular Asset Types

B.39 In the following sections additional information is given in relation to the assessment of lives of certain types of asset.

Overhead Lines

B.40 Two different sets of life maxima are given in Table B.1 - one for concrete poles, the other for wooden poles. This is notwithstanding the fact that a single set of maximum values has been given reflecting the MEA asset replacement type.

Zone Substations

B.41 The maximum TL of zone substation transformers is to be taken as 45 years, as shown in Table B.1. However, in accordance with clauses B.34-B.36, where sound maintenance programmes have been in place over the life of the asset, the TL for such transformers may be extended, but to not more than 60 years. Such an extension assumes a typical urban and commercial load curve and cyclic loading in accordance with IEC 354 and should cover most situations in New Zealand. For such extensions, the Valuer should be provided with all required supporting information.

Indoor Distribution Switchgear

B.42 The maximum TL of indoor distribution switchgear is to be taken as 45 years, as shown in Table B.1. However, in accordance with clauses B.34-B.36, where indoor distribution switchgear is of modern, sealed design and specified to operate without maintenance for an extended number of operations, the TL may be extended, to not more than 55 years. In such cases, the Valuer should be advised of the type of switchgear installed and the Standard (IEC) to which it has been constructed. The TLs in this clause are also applicable to indoor zone substation incoming (33kV) switchgear. (Normally, however, such switchgear is outdoor.)

Distribution Transformers

B.43 The maximum TL of distribution transformers is to be taken as 45 years, as shown in Table B.1. However, in accordance with clauses B.34-B.36, distribution transformer lives may be extended, but to not more than 55 years, providing that general maintenance, including tank replacement during the life of the transformer, is expensed and not capitalised. The major factor in determining the ultimate life of the transformers is then the life of the core and windings. For the application of an extension to the TL, the Valuer must be provided with all required supporting information.

Transmission Lines

B.44 The maximum TL of transmission lines is to be taken as 55 years, as shown in Table B.8. This is the TL allowed for transmission lines constructed in areas with normal environmental conditions. Transmission lines in coastal (hostile corrosive environment) is to be accorded an asset TL of only 35 years, and, in accordance with clauses B.35 and B.36, transmission lines lives may be extended, but to not more than 70 years, where those transmission lines are in lower than normal corrosive conditions (dry inland).

Valuation of the DC Link

B.45 The HVDC link between Benmore and Haywards is a major component of the transmission system. The HVDC link is an asset whose economic value is based on the service it provides to the New Zealand electricity system. Because of the size of the investment in DC assets it is essential that the economic valuation of this asset is carried out carefully and objectively.

B.46 The High Voltage Direct Current link should be valued using the standard ODV methodology. The factors that should be addressed in the valuation include:

• The economic justification for the link;
• The risk of physical or functional failure of the link; and
• The risk of under-utilisation of the link, either for operational reasons, or due to insufficient generation in the South Island or due to major new load arising in the South Island or additional generation built in the North Island.
• The EV of the link should be assessed in terms of its value to the system. This involves an assessment of what the system costs (i.e. both generation and transmission) would have been in the absence of any link, or with a link of different size or specification level.

Local ELB Maximum Costs and Lives

B.47 The following table gives maximum replacement costs and lives that should be applied in valuing local ELB system fixed assets.

Table B.1: Local ELB Maximum Asset Values and Lives (1998 Table Revision)

Transpower Maximum Costs and Lives

B.48 The following tables give maximum replacement costs and lives that should be applied in valuing Transpower's system fixed assets.

B.49 The maximum replacement costs included in the tables are subject to adjustment for seismic factors (for substations) and interest incurred during construction. The adjustment factors are shown tables B.9 and B.10.

Substations by Standard Size

For valuing establishment and buildings, substations are split into facilities of four standard sizes - Major, Medium, Small and Rural.

Table B.2: Establishment Building Block Costs

Substations (Standard Sizes) by Indoor/Outdoor

For costing buildings at substations, the four standard sizes are further broken down to differentiate between indoor or outdoor facilities.

Table B.3: Buildings Building Block Costs

Transformers

Replacement costs for a large number of power transformer options have been provided to cover the range of power transformer sizes and configurations used by Transpower. Generally, costs are provided for power transformers with On-load Tap Changers, except where identified.

Table B.4: Power Transformer Building Block Costs

Oil Containment

Oil containment is costed based upon the capacity of the facility.

Table B.5: Oil Containment Building Block Costs

Switchgear

Table B.6: Switchgear Building Block Costs

Reactive Power Plant

Table B.7: Reactive Power Plant Building Block Costs

Transmission Line

Table B.8: Transmission Line Building Block Costs

Table B.9: Seismic Adjustment Factors (for Substations)

Table B.10: Interest During Construction Factors

⁴Some components of switchgear, in particular infrastructure, currently has a life of 55 years

⁵Life of Neutral Earthing Resistors to be confirmed

⁶Transmission lines are assigned lives according to environmental factors (see B.46).