Minor projects proposed approach

 Purpose of the session is to provide an overview of the proposed process for the review of Transpower’s minor projects capital expenditure proposal  The overview sets out the approach intended to apply in the longer term; transitional mechanisms that may apply are discussed in the next session

Governance and Management Policies, strategies and procedures that deliver services required at least cost Business management Assessment and approval of expenditure plans and variations Asset management data (condition, age, network loadings and performance etc.) Engineering and technical Asset management planning and implementation Service level obligations Expenditure plans Large Projects Supported by quantitative building block information provided at a level that demonstrates practical application of sound policies, strategies and procedures The Commission’s focus is at the business case level for large projects and at the qualitative governance and management level for minor projects Top (by cost) project review and sampling of balance Ratios and base data Expenditure plans Minor Projects Review of the application of policy and potential efficiency gains

Overview of the proposed approach Proposition is tested by reference to quantitative information and analysis undertaken to assess if the policies etc. have been applied in practice. Proposition is that if policies etc. are appropriate then planned expenditure will also be appropriate for use as an expenditure allowance Assessment considers policies etc. and if appropriate provides adjustment factors to account for potential efficiency gains Transpower provides qualitative information (e.g. policies, strategies and procedures used to establish the expenditure forecasts) Minor projects Expenditure Allowance

Minor Projects - summary  Includes both RRE and IST projects  Can include aggregated projects groups (e.g. programmes)  Aggregated project groups must be subject to a common underlying asset management strategy or policy  Policies, strategies and processes assessed  Projects for the first 3 years must have completed required process stages and gained Transpower approvals prior to inclusion in the minor projects expenditure allowance  Projects with for years 4 & 5 that have not completed Transpower’s internal approval processes may be adjusted prior to inclusion in the minor projects expenditure allowance

Minor Projects – summary (continued)  Review considers application of the policies and processes  Adjustments may be made to account for potential efficiency gain  Approved expenditure allowance sets the boundary for minor capex expenditure (substitution allowed within the boundary)  Substitution limitations may apply (e.g. within business divisions an/ or asset categories)  Policy changes occurring during RCP need to be considered

Minor Projects proposed approach Process improvements Project and programme List 1 Projects that have completed process and gained Transpower approvals Approved project and programme list 1 assessment Projects that have not completed Transpower’s approved internal project approval processes are rejected Process Improvements assessment Project list 2 Projects that have not completed process and gained Transpower approvals AM policies, strategies and planning information Project list 2 assessment Years 4 & 5 only Determination of Expenditure Allowance Process improvement adjustments applied if appropriate Projects and programmes considered for approval Excludes projects that have been rolled-over for more than one RCP Subject to adjustments prior to inclusion in MAR Approved Expenditure Allowance The Commission makes a decision on the Expenditure Allowance for the RCP MAR Approved expenditure included in RAB used to establish the MAR Possible safety net Consideration of safety net provision to account for significant underspends

Discussion