TRANSMISSION AUGMENTATIONS INTO AUCKLAND: CAPITAL …

Parsons Brinckerhoff Associates

TRANSMISSION AUGMENTATIONS INTO AUCKLAND:

CAPITAL COST ESTIMATES FOR

SHORT-LISTED ALTERNATIVES TO TRANSPOWER’S 400 KV

TRANSMISSION LINE PROPOSAL

A report prepared for

26 March 2006

Disclaimer Notice

Report for the Benefit of Electricity Commission

This Report has been prepared exclusively for the benefit of the Electricity Commission. Parsons Brinckerhoff Associates Ltd (PB Associates) will not be liable to any other persons or organisation and assumes no responsibility to any other person or organisation for or in relation to any matter dealt with or conclusions expressed in the Report, or for any loss or damage suffered by any other persons or organisations arising from matters dealt with or conclusions expressed in the report (including without limitation matters arising from any negligent act or omission of PB Associates or for any loss or damage suffered by any other party relying upon the matters dealt with or conclusions expressed in the report). No person or organisation other than the Electricity Commission is entitled to reply upon the Report or the accuracy or completeness of any conclusion and such other parties should make their own enquiries and obtain independent advice in relation to such matters.

Reliance on Data

In preparing this Report, PB Associates has relied on information supplied by and gathered from a number of sources including public domain and proprietary data services, internet sites, news services as well as parties involved in the industry. The report addresses alternative transmission augmentations that were identified by the Electricity Commission and their consultants, System Studies Group NZ Ltd (SSG), and we have relied heavily on the information provided to us by the Commission and SSG in this regard. We have not used any data which has been provided to the Electricity Commission or PB Associates under a confidentiality agreement or that which has been deemed “confidential” by the owner of the information. Any projections are estimates only and may not be realised in the future. No blame or responsibility should be attached to any of these sources for any factual errors or misinterpretation of data in this Report. PB Associates has not independently verified the accuracy of this information and has not audited any financial information presented in this Report.

Limitations

This Report covers capital cost estimates relating to transmission lines and substations and is based on the facts known to PB Associates at the time of preparation. This report does not purport to contain all relevant information for all plant discussed. PB Associates has made a number of assumptive statements throughout the Report, and the Report is accordingly subject to and qualified by those assumptions. The estimates were prepared at a desktop level only and did not involve any site surveys, geotechnical analyses or detailed design work. The uncertainties inherent to capital cost estimation for large construction projects, especially where such estimates are prepared at a desktop level only should therefore be taken into account by any party relying on this report.

Parsons Brinckerhoff Associates Ltd.

Level 3, Hitatchi House 48-54 Mulgrave Street

Wellington Phone : 04 499 1000

Fax : 04 916 6514

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Table of Contents

SECTIONS

1. INTRODUCTION............................................................................................................................4 1.1 BACKGROUND ...................................................................................................................4 1.2 SCOPE OF STUDY .............................................................................................................4 1.3 METHODOLOGY.................................................................................................................5

2. ASSUMPTIONS MADE .................................................................................................................7 2.1 SHORT-LISTED TRANSMISSION AUGMENTATION ALTERNATIVES............................7 2.2 GENERAL WORK AND COST ASSUMPTIONS.................................................................7

2.2.1 Basis of unit costs.................................................................................................9 2.3 EASEMENTS.................................................................................................................... 10 2.4 CALCULATION OF 2010 COST ESTIMATES ................................................................. 12

2.4.1 Escalation .......................................................................................................... 12 2.4.2 Interest during construction ............................................................................... 14 2.4.3 Contingency amounts........................................................................................ 12

3. ESTIMATED CAPITAL COSTS ................................................................................................. 16 3.1 INCREMENTAL UPGRADE PACKAGES ........................................................................ 16 3.2 COST ESTIMATE FOR TRANSPOWER 400 KV INVESTMENT PROPOSAL ............... 17 3.3 400 KV LINE IN 2017........................................................................................................ 19 3.4 220 KV LINE IN 2017........................................................................................................ 20 3.5 MONOPOLE/BIPOLE HVDC IN 2017 .............................................................................. 21 3.6 400 KV LINE IN 2021........................................................................................................ 23

APPENDICES:

Appendix A: Comparison Comparison of the PB Associates and Transpower cost estimates for the 400 kV Investment Proposal

Appendix B: The Property Group report : 400 kV North Island Electricity Grid Upgrade – Estimate of Easement Costs

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Glossary of Terms Term Definition

HVDC High voltage direct current

ODV Optimised deprival valuation

PST Phase shift transformer

SVC Static VAR compensator

VAR Reactive power

Substation abbreviations Abbreviation Substation

ARI Arapuni

BOB Bombay

BPE Bunnythorpe

GLN Glenbrook

HAM Hamilton

HAY Haywards

HLY Huntly

HLE Huntly East (New switching station)

MDN Marsden

ONG Ongarue

ORT Ormiston Road (Cable – line interface)

OTA Otahuhu

SFD Stratford

TAK Takanini

TMN Taumaranui

TWH Te Kowhai

PAK Pakuranga

PKT Puketutu

WES Western Road

WHU Waihou

WIR Wiri

WKM Whakamaru

WRK Wairakei

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Final options cost report 27 Mar 06 March 2006 4

1. INTRODUCTION

1.1 BACKGROUND The Electricity Commission (Commission) is currently evaluating Transpower’s proposal to construct a new 400 kV double circuit power line between their Whakamaru and Otahuhu substations in the North Island of New Zealand (the Investment Proposal).1 To execute their responsibilities under the Electricity Governance Rules (EGRs) the Commission also has to consider viable alternatives to the Investment Proposal. The Commission published a consultation paper seeking submissions in this regard in May 2005 2 and published a summary of the submissions in September 2005.3 Following this, the Commission has embarked on a preliminary technical and economic analysis of the Investment Proposal as well as a number of selected transmission augmentation alternatives.4 PB Associates prepared preliminary capital cost estimates for these alternatives.5

Based on a preliminary economic and technical analysis, the alternatives were reduced to a final short-list as detailed in a report by System Studies Group NZ Ltd (SSG)6, and subsequently amended as described in the SSG report dated 13 March 2006.7

This report provides updated capital cost estimates for the short-listed transmission alternatives. The estimates are intended as base data for the Grid Investment Test that the Commission will conduct to compare the relative merit of the Investment Proposal and the transmission augmentation alternatives.8 We understand that, based on the outcome of this test, a recommendation will be made to the Minister on whether the Investment Proposal should be approved.

1.2 SCOPE OF STUDY PB Associates was requested by the Commission to further refine the preliminary capital cost estimates for the preferred transmission alternatives identified by SSG. This would be based on more in-depth desk-top studies and cost investigations. The estimates cover the :

1 ‘North Island 400 kV Grid Upgrade Investment Proposal’, Transpower New Zealand Ltd, May 2005. 2 ‘Alternatives to Transpower’s Proposed Whakamaru – Otahuhu Transmission Upgrade’, Electricity Commission, 27 May 2005. 3 ‘Alternatives to Transpower’s Proposed Whakamaru – Otahuhu 400 kV Transmission Line : Submissions Summary and Responses’, Electricity Commission, September 2005. 4 Generation and demand side alternatives are being investigated separately and are not addressed in this report. 5 PB Associates report titled “Alternative Transmission Augmentations into Auckland : Preliminary Capital Cost Estimates”, dated 20 December 2005 6 SSG report titled “Transmission Augmentations into Auckland : Comparison of Transpower’s Proposal and Short-listed Alternatives, S001-03 Draft Revision 5”, dated 23 December 2005. 7 SSG report “Transmission Augmentations into Auckland : Technical Analysis of Transpower’s Proposal and Short Short-listed Alternatives Part II” dated 21 March 2006. 8 This Grid Investment Test is required in terms of Part F, Section III of the Electricity Governance Rules.

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• installation cost for each short-listed transmission alternative, including the costs for planning, surveys, design, procurement, transport, delivery, construction, supervision, project management, testing and commissioning;

• cost to obtain the necessary easements for each alternative; and

• cost to gain resource consent for each alternative, including the cost for environmental impact analyses, public consultation and communication, and the resource management process.

These updated cost estimates are to be used as base inputs into the life-cycle analysis and economic evaluation to be carried out by the Commission for the short-listed transmission alternatives.

In addition, the Commission has tasked PB Associates to respond to the capital cost estimates prepared by Transpower for their 400 kV investment proposal, as well as to highlight and explain differences that exist between our and Transpower’s estimates.

1.3 METHODOLOGY PB Associates conducted this study on a "desktop" basis and no site surveys were undertaken or detailed designs prepared. For each short-listed alternative:

• a preliminary line design was prepared, based on the nature of the option evaluated, the proposed installation routes and construction technique (accounting for existing line constructions where appropriate);

• a preliminary substation design was prepared, based on the nature of the option evaluated and the substation work required to implement each option;

• a cost estimate was prepared, based on the preliminary designs and the anticipated planning, design, and project management inputs that would be required for a complete installation;

• the cost to obtain easements was estimated;9 and

• the likely resource consent, public consultation and communication processes were evaluated and an estimate made of the time and cost involved in this.10

The study relied predominantly on the following information sources:

• information provided by the Commission and their consultants about the various alternatives to be considered;

• existing Transpower transmission line routes, as available from public sources and supplied by Transpower;

• existing Transpower transmission line designs, as supplied by Transpower;

9 This work was undertaken by The Property Group Ltd, subcontracting to PB Associates. Their findings are presented in appendix A, in their report titled “400 kV NORTH ISLAND ELECTRICITY GRID UPGRADE- ESTIMATE OF EASEMENT COSTS” dated March 2006. 10 This part of the work was undertaken by Environmental Management Services Ltd (EMS), subcontracting to PB Associates. A copy of the EMS report, titled “Transpower 400kV Upgrade Project: RMA Assessment” dated November 2005 was attached to the earlier PB Associates report (supra note 5).

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• cost data requested from various suppliers and installers of transmission and substation equipment, as well as steel, concrete and other foundation and tower material;

• the Optimised Deprival Valuation (ODV) Handbook (2004) published by the New Zealand Commerce Commission;

• in-house PB (UK) 400 kV costing information;

• land usage and values, provided by The Property Group; and

• in-house data from transmission and substation projects with which PB Associates and PB Power NZ Ltd have been involved in recent years.

It should be noted that study did not involve any site inspections, route or geotechnical surveys or detailed design work. The cost estimates are generally considered to be within a + 10% accuracy range, with the possible exception of the easement costs (as discussed later in this report). All estimates were subjected to rigorous internal cross-checking and quality control measures.

The underlying study was based on 16 March 2006 equipment and construction rates. All costs were also escalated to June 2010 values, which is the base date used by the Commission for the economic evaluation. In addition, an allowance was made for interest during construction and a contingency amount. These aspects are further discussed below.

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2. ASSUMPTIONS MADE

2.1 SHORT-LISTED TRANSMISSION AUGMENTATION ALTERNATIVES The SSG report11 discusses the short-listed transmission augmentation alternatives in detail and are summarised in table 1 below. The Investment Proposal (400 kV lines in 2010) is included in this list.

Table 1 : Summary of short-listed transmission alternatives

Title Description 400 kV in 2010 400 kV line OTA – WKM in 2010 based on Transpower’s

proposal 400 kV in 2017 400 kV line OTA – WKM in 2017 preceded by intermediate

investments in 2010 220 kV in 2017 220 kV line OTA – WKM in 2017 preceded by intermediate

investments in 2010 HVDC in 2017 HVDC line OTA – WKM in 2017 preceded by intermediate

investments in 2010 400 kV in 2021 400 kV line OTA – WKM in 2021 preceded by intermediate

investments and duplexing of OTA – WKM Lines A & B in 2010

The Commission provided PB Associates with a breakdown of the work required and the construction timeline for each of these alternatives. This formed the basis of the cost estimates.

2.2 GENERAL WORK AND COST ASSUMPTIONS The following assumptions are common to all the alternatives:

• All costs are expressed in New Zealand dollar.

• All base costs are based on 16 March 2006 unit rates, even where augmentations are only envisaged to occur at a later date.

• Cost estimates are made for the project costs using a 2010 base date. These project costs include allowances for escalation from March 2006 to 30 June 2010, interest during construction, and contingency amounts.

• Where material costs were obtained from suppliers, we have made additional allowance for detailed design of installations by Transpower or their consultants (typically ranging from 4-8% of the project value, depending on the nature of the components involved), contractor’s own design and project management (varying in accordance with the type of installation), transport (15%, or as quoted) and contractor overhead costs (5%). Construction, testing and commissioning costs are also allowed for.

• Where relevant, indicative costs from the ODV Handbook schedules were also used to benchmark against supplier’s quotations. The Handbook

11 Supra note 6

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costs are deemed to include the additional overhead allowances – this is in accordance with the approach prescribed in the Handbook.

• Based on Transpower’s costing breakdown for their 400 kV augmentation proposal, we have allowed a general extra cost component (5% of the cost of each alternative) to provide for their overhead and project management costs. This is separate from the survey, engineering or contractors’ project management work directly related to the construction works as noted in the previous bullet point.

• Costs from the PB UK 400 kV database were adapted to include design, project management, transport, erection, commissioning and diverse civil engineering works. In addition, an allowance was made for escalation of the UK CPI from 30 June 2002 to 28 February 2006 (the base year of the database is 2002) or 5.7%.12

• The 16 March 2006 spot exchange rates in table 2 were used to convert overseas costs to local costs. This is in accordance with advice received by the Commission that it is appropriate to use current exchange and inflation rate figures in calculating 2006 estimates and converting these to 2010 values.13

Table 2 : Forward exchange rates used for cost calculations

Currency NZ$ UK Pound 0.36881Swedish Krona 5.005Swiss Frank 0.834Euro 0.534Australian dollar 0.8725US dollar 0.644

• With regard to transmission line upgrades, we made the following assumptions:

- Where significant upgrades are made, involving any substantial increase of tower size or strengthening of foundations, we have assumed that this would affect Transpower’s existing statutory rights to the line right of way and that an easement will have to be formally acquired. (See the discussion in section 2.3 on easements.)

- Where line upgrades involves line re-tensioning or very limited restringing, we have not allowed for new easements.

- For the upgrade of the twin circuit WKM-OTA 220 kV lines C, it was assumed that this would be achieved by retensioning the conductors only.

• In the EMS report14 an indicative range of the Resource Management process costs for various types of line or cable construction was provided.

12 Source : National Statistics, United Kingdom (http://www.statistics.gov.uk/statbase/TSDdownload2.asp) 13 We note this is different from the approach adopted by Transpower, which bases their forecasts on 2010 future exchange rates. 14 Supra note 10

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Resource consents will likely be required even where existing lines are upgraded. Based on this range, we have classed projects into four main categories and estimated the costs for the resource management process based on these categories :

- Base case : Projects similar in impact to the 400kV line proposal

- Complex upgrade : Upgrades of lines involving significant tower changes

- Simple upgrade : Upgrades of existing lines requiring minor tower changes only

- Temporary line : Upgrades of lines where a temporary line will be constructed adjacent during the construction process

- Cable : Underground cable projects

Within limits, the resource consent process is relatively insensitive to the route lengths, which for this project tend to vary between 150 km and 200km. For the shorter section, we have applied a scaling factor to the costs.15

• No provision is made for possible future changes to the Resource Management Act and the possible impact that this may have on infrastructure project prices.

• The underlying details of our cost estimates are contained in spreadsheets which have been separately supplied to the Electricity Commission.16

• While allowance has been made for the transporting of construction material, no allowance has been made for possible Transit New Zealand requirements to strengthen roads or bridges. Such strengthening may be required where very heavy equipment, such as 500 MVA, 400/220 kV transformers, are to be transported to substation sites.

2.2.1 Basis of unit costs The base prices for the technical works relies on information from the following sources :

• Transmission lines - steel, foundations, conductors, insulators, diverse line and tower equipment material and construction costs - suppliers and contractors.

• 400 kV Cable, cable joints and terminations – suppliers

• 220 kV Cable, cable joints and terminations – suppliers

• Trenching, cable installation and reinstatement – contractors and PB project records

15 It should be noted that the cost estimates for the resource consent process is subject to a higher level of uncertainty than the technical works or acquisition of easements. This is due to the uncertainty about challenges that may be made, unexpected problems that may be incurred and the like. However, as a percentage of the total project costs, these variances will be small. 16 Some of the information provided by suppliers and obtained from the PB database is confidential or commercially sensitive and therefore not available for public distribution.

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• 220 kV Switchgear, substation buildings, transformer and switchgear bays, oil containment installations & other substation equipment – supplier quotations, ODV Handbook and PB project records

• 400 kV Switchgear, protection, CTs, VTs and other substation equipment – supplier quotations and the PB UK database

• Substation buildings, transformer and switchgear bays, oil containment installations – ODV handbook and PB project records

• Power transformers, phase-shift transformers and reactors – suppliers

• Capacitor banks – supplier quotations and ODV handbook

• Synchronous condensers and static VAR compensators – suppliers

• HVDC cables – suppliers

• HVDC overhead lines – suppliers and PB records

• HVDC terminals – supplier (turnkey estimate)

Substation and equipment costs were verified by an independent quantity surveyor.

2.3 EASEMENTS The cost of the easements required for the various transmission line alternatives is an area of considerable uncertainty and potential contention.

The approach for valuing the easements was as follows :17

• The line routes for each of the alternatives were examined in some detail and the properties that would be affected were identified. (This was done on a desktop basis, and no sites were inspected and no property-owners were approached. Where required, aerial plans have been used.)

• It is assumed that the affected properties would be acquired by Transpower at market values (for lifestyle or residential properties) or that compensation would be provided for rural property owners based on easement sizes, tower sizes, property size and property values. Where land is acquired, Transpower would register its required easements and resell the land at an impaired market value.

• The value of properties with a transmission line easement on them would be impaired and this was taken into account when estimating resale values. The extent of impairment is open to judgement, but generally ranges from 30% (for land with a new 400 kV line easement) to 5% (for land with 220 kV line easements on which lines previously existed and where no major structural changes to towers or foundations are required). A key assumption is that the presence of existing lines on a property would already affect its value and that the impairment resulting from a formal easement on such a property would therefore be less pronounced than where no lines (or much smaller lines) existed in the past.

• In addition to the impairment cost, additional costs were allowed for:

17 See appendix A for The Property Group report in which the easement valuations are discussed.

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- survey costs ($ 1,000 to $ 1,500 per property);

- loss of production during construction (10% of easement fee); and

- disturbance costs (legal, valuation, other - $ 10,000 per property).

Where properties are acquired, the following additional costs are also allowed :

- acquisition costs ($ 10,000 per property); and

- disposal costs.

• The market value of the affected land was estimated based on accepted valuation principles, using information available from Terraview, Land Information New Zealand, Valuation roll information and other sources.

• In The Property Group’s figures, it was assumed that relocation of or adverse impact on major improvements would be avoided or minimised. However, since determining the magnitude of cost involved for this is not possible without site investigations, costs have only been allowed (by adapting the impairment factor) where such actions were evident from aerial plans. To minimise uncertainty in this regard, PB Associates have allowed an additional 10% in the easement costs.

• We note the views obtained by Manukau City Council18 that indicate the potential for substantial impairment of the value of lifestyle blocks and rural properties between Ormiston Road and Highbridge Road that would be affected by the proposed transmission lines.

The cost of easement is clearly one where significant uncertainties remain. It also forms a substantial proportion of the cost of all the options considered. However, since all the options are affected by the easement valuation, the impact of variations in the actual cost on the economic comparison of the alternatives will be lessened (with the possible exception of the HVDC option, which proposed a line route all the way to Otahuhu substation).

It is not clear that easements would need to be formally registered for the 220 kV OTA-WKM A & B circuits duplexing work. Since this work would only involve stringing of a second set of conductors directly adjacent to the existing conductors and replacement of insulators and no substantive changes to the line or tower structures will be incurred, it could be considered similar in nature to maintenance or repairs. In addition, there would be minimal additional visual or other adverse environmental impacts, or impact on the value of properties. A strong argument could therefore be made that Transpower’s existing statutory rights to the line easement should remain un-altered.

However, to make a ruling on this would require a detailed legal opinion and, potentially a test-case in court. Providing a legal brief is beyond the scope of this investigation and, in order to provide a conservative assumption, we have therefore allowed for formal easements for both upgraded circuits.

Based on The Property Group’s assessment, as adapted by PB Associates, the easement costs in table 3 are included as part of the capital cost estimates:

18 Confidential report by Seagar & Partners, dated 7 November 2005 prepared for Manukau City Council.

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Table 3 : Easement costs allowed (March 2006 values)

Alternative assessed Gross cost a e

($ million) Net cost a e

($ million) 400 kV line 154.1 91.5 dHVDC line 108.0 51.3 (New) 220 kV line 119.9 65.2 Existing 220 kV lines (WKM-OTA A&B circuits) duplexed

387.2 b 85.6 c

Notes : a) The gross cost is the easement cost prior to resale of acquired properties. Net cost is the final estimated easement cost to the project (after resale of land).

b) This includes a provision of $ 204.7 million for 379 affected properties in Manakau City that may have to be acquired prior to resale. As houses have currently been built under the lines, it is assumed that a ready market for such properties will remain.

c) This allows for a negative scenario with regard to the impairment of property values, reflecting the uncertainty that exists around the extent of the impairment on properties where lines already exist and where minor changes only will be made to these lines.

d) The Property Group’s report was prepared on an average 400 kV tower height of 47m. To allow for higher towers along the route, the estimate was increased by 20%, as per their recommendation.

e) In all cases an additional allowance of 15% has been made to account for the potential loss of subdivision potential of land affected by the line easements.

2.4 CALCULATION OF 2010 COST ESTIMATES The base estimates prepared by PB Associates are based on March 2006 equipment and installation prices. However, for the purposes of the grid investment test, the base date for comparison by the Commission will be 2010 – they year in which the proposed 400 kV line will be commissioned.

It is therefore necessary to escalate all the March 2006 estimated costs to 2010 values. In addition, for the purposes of calculating the full cost that would be incurred by Transpower for the construction of the Investment Proposal or any of the transmission alternatives considered, allowance also has to be made for interest during construction and contingency amounts. The approach followed to determine these amounts was as described below.

It should be noted that the Commissions economic analysis is based on real values after 2010. All project costs are therefore converted to 2010 values, regardless of when the actual construction is scheduled to take place. In each case, to allow escalation an interest during construction to be calculated on an equivalent basis, a theoretical construction schedule was assumed to allow the commissioning of an infrastructure component to take place early in 2010 and that the final capital expenditure will take place on 30 June 2010.

2.4.1 Contingency amounts The cost of infrastructure projects is subject to various external factors that cannot always be foreseen, or avoided when they arise. The cost estimates are based on expected conditions that will exist during the construction of the various project components. For most components there should be an equal probability of the actual project costs being higher or lower than the estimated costs.

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However, it is our experience that in practice an asymmetry exist in project cost variations, and that cost rises due to unforeseen factors often exceed the reductions that should occur when situations arise that make construction work easier. Similarly, it is our experience that the scope of construction projects generally tends to increase from that foreseen during the planning stage, while scope reductions are less common. In view of this asymmetry, we believe that some allowance for a contingency amount should be included in the cost estimates.

In addition, there are a number of factors which cannot be accounted for in the base rates at this preliminary stage, and for which a contingency allowance is therefore also required. These factors include the following.

a) No allowance has been made for the possible need for reinforcement of bridges that may be required for the transporting of heavy equipment such as transformers. This need can only be determined after conducting detailed surveys of the bridges.

b) No allowance has been made for undue escalation of equipment costs due to high international demand. (In our experience, the impact of such demand is again asymmetrical, in that equipment prices tend to increase rapidly and often sharply from their nominal market levels during periods of peak international demand, while there is rarely an equivalent reduction during periods of low demand.)

c) No allowance has been made for abnormal service crossings by the underground cables, or for the crossing of bridges, rivers, railways or motorways. These costs do not form part of standard installation rates and cannot be determined until a detailed survey of the cable routes are done.

d) Since the exact position of the line towers are not known at this stage, average provision only has been made for the restoration of land, driveways, fences, etc..

e) No provision has been made for specific requirements by clients at the Otahuhu substation end of the proposed circuits (such as additional equipment to lower fault levels or to provide more control functionality).

f) The cost for obtaining easements is estimated based on current experience. If this process should become more strenuous in future, these costs are likely to rise, but at this stage it is not possible to forecast these changes.

g) Similarly, the estimated easement costs are subject to significant uncertainty. These have been based on current assumptions, but no further allowance for future law changes have been allowed.

Based on PB Associates’ experience of similar construction projects and reflecting the degree of risk for expenditure fluctuations for different components, contingency amounts have therefore been allowed.

The typical contingency amounts allowed are as noted in table 4 below.

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Table 4 : Typical contingency amounts allowed

Component Contingency amount allowed (as a % of total

base project cost) Transmission lines 10% Acquiring easements 5% Resource consents 10% Underground cables 10% New substation works 5% Project management 5% Investigation, designs 5%

2.4.2 Escalation All base costs, including the contingency amounts, were escalated to 2010 values at an inflation rate of 3% per year, for the 51 months from end March 2006 to end June 2010. This inflation figure is as proposed by Transpower in their Investment Proposal.

While recent experience indicates that the annual New Zealand inflation rate has been close to this and even exceeding this figure, the historical inflation average over the last ten years has been well below this. We also note that this figure is at the highest end of the band within which the Reserve Bank Act requires inflation to be managed which, assuming that the Reserve Bank Governor achieve this goal, would imply that the longer-term average inflation rate is likely to below 3%.

However, since the figure falls within the range of feasible estimates and to retain consistency with the Transpower calculations, we decided to adopt the same rate for our calculations.

2.4.3 Interest during construction As the construction programmes for the Investment Proposal and the alternatives considered will run over several years, there will be a significant amount of capital tied up during the construction period. This represents an additional cost to the project, as Transpower could legitimately expect a return on these funds during the time that they are tied up.

To calculate the extent of capital tied up during the construction programmes, we assumed typical construction programmes for the various components making up the Investment Proposal and the transmission alternatives. Based on these programmes and using the component cost estimates escalated to June 2010 values (including contingencies), the estimated size of investment for each year was calculated. It is assumed that expenditure occurs at the middle of each financial year (31 December).19 It was assumed that commissioning of the

19 We note that for the base case proposal, the 400 kV circuits in 2010, this assumption presents a problem, as the midpoint for the 2006 financial year has already passed without most of the actual planned expenditure for this year (as far as we are aware) having been incurred. However, no correction was made for this, as this assumption will hold for all the alternatives considered and for a like-for-like comparison, it is therefore necessary to treat the base case similarly. If an allowance is to be made in the Transpower construction programme for shortening the construction period for the 400 kV circuits in 2010, similar allowances has to be made for the alternatives.

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projects would take place early in 2010, and that the final expenditure would occur on June 30 2010. Interest was therefore calculated up to 30 June 2010.

The project programme for the Investment Proposal was estimated based on information provided by Transpower on their planned construction programme.

The rate of return used was 7% per year, pre-tax, real. This is in accordance with the approach adopted by the Commission to base the economic test on 2010 real values, using the rate of return recommended in the GIT.

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3. ESTIMATED CAPITAL COSTS

In the section below, the estimated capital costs for the Investment Proposal and the various transmission augmentation alternatives are presented. These are presented for both the 2005 base costs and the 2010 full project costs.

3.1 INCREMENTAL UPGRADE PACKAGES Included in all of the transmission augmentation alternatives considered is an incremental upgrade package that would allow deferment of the major transmission investment till 2017. The base (January 2006) cost estimated for the incremental upgrade package is provided in table 5 below, and the 2010 costs in table 6.

Table 5 : Incremental Upgrade Package in 2010 – 2006 costs Year Augmentation Cost

Uprate the HLE-HAM–WKM section of the OTA – WKM 220 kV Line C (double circuit) from 493/404 MVA to 567/467 MVA

2,923

2 x 100 MVAR Capacitors HLY 220 kV 6,091 1 x 75 MVA PST 110/110 kV ARI – BOB 4,452 2 x 75 MVA 110/110 kV PST ARI – PAK 8,903 1 x 75 MVA PST 110/110 kV HAM – WES Circuit 1 4,452

2010

1 x 75 MVA PST 110/110 kV HAM – WES Circuit 2 4,452

Spare 1 x 75 MVA PST 110/110 kV 3,544

Re-conductor the ARI-PAK 110 kV line 15,892 2016 1 x 300 MVAr SVC OTA 220 kV 25,371

Total 76,079 Notes : a) Costs are given in NZ $ '000

b) Costs are expressed in Mar 2006 terms

Table 6 : Incremental Upgrade Package in 2010 – 2010 Costs

Year Component Base Design/Investi

gate

Project Man.

Contingency

Escalation

IDC Total ($'000)

2010 Uprate OTA-WKM line C between HLE, HAM & WKM

2,703 81 139 411 127 146 3,607

work 2 x 100 MVAR Capacitors at Huntly sub

5,322 479 290 856 375 305 7,627

75 MVA Phase Shift Transformer (ARI – BOB)

3,890 350 212 626 274 223 5,574

2 x 75 MVA Phase Shift Transformers (ARI – PAK)

7,779 700 424 1,251 548 445 11,148

75 MVA Phase Shift Transformer (HAM-WES 1)

3,890 350 212 626 274 223 5,574

75 MVA Phase Shift Transformer (HAM-WES 2)

3,890 350 212 626 274 223 5,574

Spare 75 MVA PST 3,184 191 169 498 215 177 4,434 Re-conductor the ARI-PAK 110 kV

line 14,694 441 757 2,234 944 795 19,864

SUBTOTAL 45,352 2,942 2,415 7,127 3,032 2,535 63,403 2016 1 x 300 MVAr SVC OTA 220 kV 22,167 1,995 1,208 3,566 1,762 1,269 31,967

PB Associates


In the above estimates, no allowance was made for easements associated with the upgrading of the southern part of the OTA-WKM C line. The underlying assumption is that the upgrade will require retensioning of conductors only and will not involve any structural changes to towers or conductors. As discussed above, for works involving no structural change to transmission lines, it is assumed that no formal easements will be required. This is in accordance with recent precedents set by Transpower in the similar upgrading of the northern half of the circuit and where no formal easements were required. 20

Further deferment of the 400 kV line to 2021 should be possible if a further incremental upgrade package is implemented in 2010, 2018 and 2020. The estimated cost for this further package is indicated in tables 7 and 8. Table 7 : Further Incremental Upgrade Package (to defer major work to

2021) – 2006 Base Costs Year Augmentation Cost ($ ‘000)

Bus OTA – WKM 220 kV Lines A & B at HLE in a breaker-and-a-half configuration

10,959 2010

Uprate OTA – WKM 220 kV Lines A and B from 323/293 MVA to 646/586 MVA (achieved by duplexing with new twin Goat conductor.)

166,171

2018 1 x 300 MVAR SVC’s OTA 220 kV 25,371 2020 1 x 300 MVAR SVC’s WRU 220 kV 25,371

Total 227,872 Notes : a) Costs are given in NZ $ '000 b) Costs are expressed in Mar 2005 terms

Table 8 : Further Incremental Upgrade Package – 2010 Total Costs

Year Component Base Design/Investig

ate

Project Man.

Contingency

Escalation

IDC Total ($'000)

2010

Bus OTA – WKM 220 kV Lines A & B at HLE in a breaker-and-a-half configuration

9,576 862 522 548 1,540 760 13,807

work

Uprate OTA – WKM 220 kV Lines A and B from 323/293 MVA to 646/586 MVA (achieved by duplexing with new twin Goat conductor.)

61,964 3,098 3,253 3,416 9,602 4,451 85,784

Property 85,560 - 4,278 4,492 12,627 14,400 121,356

Environmental 7,636 - 382 783 1,178 1,956 11,935

SUBTOTAL 164,736 3,960 8,435 9,238 24,947 21,567 232,883

2018 1 x 300 MVAr SVC OTA 220 kV 22,167 1,995 1,208 1,269 3,566 1,571 31,776

2020 1 x 300 MVAr SVC WRU 220 kV 22,167 1,995 1,208 1,269 3,566 1,571 31,776

3.2 COST ESTIMATE FOR TRANSPOWER 400 KV INVESTMENT PROPOSAL In tables 9 and 10 below, the cost-estimate for the Investment Proposal is provided. This is Transpower’s proposed 400 kV transmission line installed in

20 Refer to the Electricity Commission Publication titled “ASSESSMENT OF TRANSPOWER’S APPLICATION FOR INTERIM GRID EXPENDITURE DATED 14 APRIL 2005 (TACTICAL TRANSMISSION UPGRADES)” dated December 2005, reference project TTU3.

PB Associates


2010, adapted to ensure that the N-1 security criterion can be maintained till 2030.

Table 9 : 400 kV Line in 2010 : 2006 Base Costs

Year Augmentation Cost ($,000) 2010 2 x 1200 MVA 400 kV circuits ORT – WKM 261,980

2 x 1000 MVA 400 kV cables ORT – OTA 97,641 2 x 50 MVAR 400 kV switched shunt reactors OTA 5,365 3 x 500 MVA 400/220 kV transformers OTA (2 installed, 1 spare)

(GIS) 91,097 3 x 500 MVA 400/220 kV transformers WKM - (2 installed, 1 spare) 61,656 Remove ARI – PAK 110 kV bonded double circuit line 4,329

SUBTOTAL 522,0672017 Install spare 1 x 500 MVA 400/220 kV transformer OTA 26,965

Purchase spare 500 MVA transformer OTA Install spare 1 x 500 MVA 400/220 kV transformer WKM 17,805 Purchase spare 500 MVA transformer WKM 1 x 75 MVA 110/110 kV PST ARI – BOB 4,452 2 x 75 MVA 110/110 kV PST ARI – HAM 8,903 SUBTOTAL 58,125

2020 1 x 300 MVAr SVC OTA 220 kV 25,3712022 1 x 300 MVAr SVC OTA 220 kV 25,3712024 1 x 30 MVAr capacitors BOB 110 kV 721

2 x 100 MVAr capacitors HLY 220 kV 6,091 1 x 300 MVAr SVC WRU 220 kV 25,371 SUBTOTAL 32,183

2026 Uprate HLE – HAM - WKM 220 kV Circuit C from 493/404 MVA to 670/614 MVA 2,923

TOTAL 666,040 Notes : a) Costs are given in NZ $ '000

b) Costs are expressed in Mar 2006 terms Table 10 : 400 kV Line in 2010 – 2010 Total Costs

Year Component Base Design/Investigate

Project Man.

Contingency

Escalation

IDC Total ($'000)

2010 400 kV Transmission line 143,213 7,161 7,519 15,063 23,173 18,590 214,719 work Property 91,494 - 4,575 4,834 13,589 29,209 143,701

Environmental 7,636 - 382 785 1,185 2,772 12,761 400 kV Cable 84,538 8,454 4,650 9,090 14,236 12,065 133,032 Whakamaru substation works 53,871 4,848 2,936 3,074 8,640 4,562 77,932 Otahuhu substation works 79,595 7,164 4,338 4,542 12,766 6,741 115,145 Shunt reactors at Otahuhu

substation 4,645 464 255 267 751 405 6,789

Dismantling ARI-PAK line 4,003 120 206 17 584 210 5,140 SUBTOTAL 468,996 28,211 24,860 37,673 74,925 74,555 709,220

2017 Otahuhu 3rd transformer 23,560 2,120 1,284 1,348 3,790 1,882 33,985 work Whakamaru 3rd transformer 15,557 1,400 848 890 2,502 1,243 22,441

75 MVA PST ARI-BOB 3,890 350 212 223 626 311 5,611 2 x 75 MVA PST ARI-HAM 7,779 700 424 445 1,251 622 11,221 SUBTOTAL 50,786 4,571 2,768 2,906 8,169 4,057 73,258

2020 300 MVAR SVC at OTA 22,167 1,995 1,208 1,269 3,566 1,762 31,967 2022 1 x 300 MVAR SVC’s OTA 220

kV 22,167 1,995 1,208 1,269 3,566 1,762 31,967

PB Associates



Project Man.

Contingency

Escalation

IDC Total ($'000)

2024 1 x 30 MVAr capacitors BOB 110 kV

630 57 34 36 250 106 1,113

work 2 x 100 MVAr capacitors HLY 220 kV

5,322 479 290 305 866 382 7,645

1 x 300 MVAr SVC WRU 220 kV 22,167 1,995 1,208 1,269 3,583 1,582 31,804 SUBTOTAL 28,120 2,531 1,533 1,609 4,699 2,071 40,562

2026 Uprate HLE – HAM - WKM 220 kV Circuit C

2,677 107 139 146 411 128 3,608

The 2010 work described in the above tables corresponds to the Transpower Investment Proposal. In Appendix A, a comparison is made between Transpower’s estimated costs for this work, and that of PB Associates.

3.3 400 KV LINE IN 2017 This alternative is similar to the proposal by Transpower, but with the project deferred until 2017. This requires the incremental upgrade package described in table 5. The cost estimate is provided in tables 11 and 12.

Table 11 : Cost estimate for 400 kV line in 2017 – 2006 Base Costs Year Augmentation Cost

($,000) 2010 2017 Incremental upgrade package 76,079

2 x 1200 MVA 400 kV circuits ORT – WKM 261,9802 x 1000 MVA 400 kV cables ORT – OTA 97,6412 x 50 MVAR 400 kV switched shunt reactors OTA 5,3653 x 500 MVA 400/220 kV transformers OTA 118,062Purchase spare 500 MVA transformer OTA 0

2017

3 x 500 MVA 400/220 kV transformers WKM 79,461 Purchase spare 500 MVA transformer WKM 0 Remove ARI – PAK 110 kV bonded double circuit line 4,329 Shift 2 x 75 MVA PST's from ARI-PAK to ARI-HAM line 501

Subtotal 567,338 2024 1 x 300 MVAR SVC’s OTA 220 kV 25,371

1 x 300 MVAR SVC’s OTA 220 kV 25,371 1 x 30 MVAr Capacitor BOB 220 kV 721 Subtotal 51,462

TOTAL 694,880 Notes : a) Costs are given in NZ $ '000 b) Costs are expressed in Mar 2006 terms

Table 12 : 400 kV Line in 2017 – 2010 Total Costs

Year Component Base Design/Investig

ate

Project Man.

Contingency

Escala tion

IDC Total ($'000)

2010 2017 Incremental upgrade package component

45,352 2,942 2,415 2,535 7,127 3,032 63,403

2016 2017 Incremental upgrade 22,167 1,995 1,208 1,269 3,566 1,762 31,967

PB Associates


package component 2017 400 kV Transmission line 143,213 7,161 7,519 15,055 23,150 18,730 214,828 work Property 91,494 - 4,575 4,803 13,502 29,146 143,520

Environmental 7,636 - 382 783 1,178 2,767 12,746 400 kV Cable 84,538 8,454 4,650 9,109 14,289 12,289 133,328 Whakamaru substation works 53,871 4,848 2,936 3,083 8,666 4,687 78,091 Otahuhu substation works 79,595 7,164 4,338 4,555 12,804 6,924 115,380 Shunt reactors at Otahuhu

substation 4,645 464 255 268 754 418 6,805

Dismantling ARI-PAK line 4,123 - 206 10 581 182 5,102 Third transfomer at OTA 23,560 2,120 1,284 1,348 478 2,314 31,105 Third transfomer at WKM 15,557 1,400 848 890 316 1,528 20,539 Shift 2 x 75 MVA PSTs 463 14 24 25 5 29 561 SUBTOTAL 508,697 31,625 27,016 39,930 75,724 79,012 762,005

2024 Third transfomer at OTA 22,167 1,995 1,208 1,269 5,664 2,444 34,747 work Third transfomer at WKM 22,167 1,995 1,208 1,269 3,396 1,505 31,540

Shift 2 x 75 MVA PSTs 630 57 34 36 97 43 896 SUBTOTAL 44,965 4,047 2,451 2,573 9,157 3,991 67,183

3.4 220 KV LINE IN 2017 This alternative is for the installation of a new twin-circuit 220 kV line along the proposed 400 kV line route, in 2017. It would require the incremental upgrade package. The cost estimate for this alternative is provided in tables 13 and 14.


($,000) 2010 2017 Incremental upgrade package 76,079

2 x 765/695 MVA 220 kV circuits ORT – WKM 202,890 4 x 400 MVA 220 kV cables ORT – OTA 117,861 2 x 35% Series Capacitors at WKM end of new 220 kV OTA – WKM line 20,470 Remove ARI – PAK 110 kV bonded double circuit line 4,329 Shift 2 x 75 MVA PST’s from ARI – PAK line to ARI – HAM line 501

2017

SUBTOTAL 346,051 2022 1 x 300 MVAr SVC Otahuhu 220 kV 25,371

1 x 100 MVAR synchronous condenser on Otahuhu 220 kV 22,686 2023 1 x 100 MVAR synchronous condenser OTA 220 kV 22,686

1 x 300 MVAR SVC WRU 220 kV 25,371 1 x 30 MVAr capacitor BOB 110 kV 721 1 x 300 MVAr SVC TRK 220 kV 25,371 1 x 100 MVAr capacitor HLY 220 kV 4,516 SUBTOTAL 78,665

2026 1 x 300 MVAr SVC’s HTE 220 kV 25,371 1 x 350 MVA 220/220 kV PST OTA-WKM Line A 11,677 1 x 350 MVA 220/220 kV PST OTA-WKM Line B 11,677 1 x 700 MVA 220/220 kV PST OTA-HLE Circuit 1 18,258 1 x 700 MVA 220/220 kV PST OTA-HLE Circuit 2 18,258

PB Associates


Year Augmentation Cost ($,000)

Spare 1 x 700 MVA 220/220 kV PST 16,510 SUBTOTAL 101,751 TOTAL 650,603

Notes : a) Costs are given in NZ $ '000 b) Costs are expressed in Nov 2005 terms

Table 14 : 220 kV Line in 2017 – 2010 Total Costs Year Component Base Design

/Investigate

Project Man.

Contingency

Escalation

IDC Total ($'000)


45,352 2,942 2,415 2,535 7,127 3,032 63,403


22,167 1,995 1,208 1,269 3,566 1,762 31,967

2017 220 kV Transmission lines 114,654 5,733 6,019 12,053 18,534 14,467 171,460 work Property 65,205 - 3,260 3,423 9,623 20,500 102,012

Environmental 7,636 - 382 783 1,178 2,767 12,746 220 kV Cables 102,044 10,204 5,612 10,995 17,248 14,731 160,835 Series capacitors at Whakamaru

substation 17,885 1,610 975 1,023 2,877 1,418 25,789

Shift 2 x 75 MVA PSTs to ARI-HAM line

463 14 24 25 70 33 630

Dismantle ARI-PAK 110 kV line 4,003 120 206 16 582 209 5,137 SUBTOTAL 311,891 17,681 16,479 28,319 50,112 54,126 478,608

2022 1x300 MVAr SVC Otahuhu 220 kV 19,642 1,964 1,080 1,134 3,189 1,404 28,414 work 1 x 100 MVAR synchronous

condenser on Otahuhu 220 kV 22,167 1,995 1,208 1,269 3,566 1,561 31,766

SUBTOTAL 41,809 3,959 2,288 2,403 6,754 2,965 60,179 2023 1 x 100 MVAR synchronous

condenser on OTA 220 kV 19,642 1,964 1,080 1,134 3,189 1,414 28,423

work 1 x 300 MVAR SVC WRU 220 kV 22,167 1,995 1,208 1,269 3,566 1,571 31,776 1 x30 MVAr capacitor BOB 110 kV 630 57 34 36 101 8 866 1 x 300 MVAr SVC TRK 220 kV 22,167 1,995 1,208 1,269 3,566 281 30,486 1x100 MVAr capacitor HLY 220

kV 3,946 355 215 226 635 50 5,427

SUBTOTAL 68,553 6,366 3,746 3,933 11,056 3,324 96,979 2026 1 x 300 MVAr SVC’s HTE 220 kV 22,167 1,995 1,208 1,269 3,566 1,571 31,776 work 1 x 350 MVA 220/220 kV PST

OTA-WKM Line A 10,203 918 556 584 1,641 723 14,625

1 x 350 MVA 220/220 kV PST OTA-WKM Line B

10,203 918 556 584 1,641 723 14,625

1 x 700 MVA 220/220 kV PST OTA-HLE Circuit 1

15,953 1,436 869 913 2,566 1,131 22,868

1 x 700 MVA 220/220 kV PST OTA-HLE Circuit 2

15,953 1,436 869 913 2,566 1,131 22,868

Spare 700 MVA PST 14,834 890 786 826 2,321 1,003 20,659 SUBTOTAL 89,312 7,593 4,845 5,088 14,301 6,282 127,422

3.5 MONOPOLE/BIPOLE HVDC IN 2017 This alternative provides for the installation of a monopole HVDC circuit from Whakamaru to Otahuhu in 2017, to be upgraded to a bipole circuit in 2020. It

PB Associates


requires the 2010 incremental upgrade package. The cost estimate for this alternative is given in tables 15 and 16.

Table 15 : Cost estimate for monopole/bipole HVDC line in 2017 : 2006 Base Costs

Year Augmentation Cost ($,000)

2010 2017 Incremental upgrade package 76,079 2017 WKM terminal station - 350 kV dc, 1 x 700 MW 112,061

OTA terminal station - 350 kV dc, 1 x 700 MW 110,917 2 x 700 MVA 350 kV monopole 200km ORT – WKM 92,833 1 x 700 MVA 350 kV cables ORT – OTA (One pole and one neutral).

Termination cost included 29,728 Resource consent 5,613 Easements 53,855 Remove ARI – PAK 110 kV Line 4,329 Shift 2 x 75 MVA PST’s 501 Subtotal 409,836

2021 WKM terminal station - 350 kV dc, 1 x 700 MW 112,061 OTA terminal station - 350 kV dc, 1 x 700 MW 110,917 1 x 700 MVA 350 kV cables ORT – OTA (One pole and one neutral).

Termination cost included 29,728 Uprate HLE-HLY 670/614 MVA to 737/675 MVA (10%) 1,209 Subtotal 253,915

2025 1 x 300 MVAr SVC’s OTA 220 kV 25,371 1 x 300 MVAr SVC WRU 220 kV 25,371 1 x 30 MVAr capacitor BOB 110 kV 721 Subtotal 51,462

2026 1 x 350 MVA 220/220 PST OTA-WKM Line A 11,677 1 x 350 MVA 220/220 PST OTA-WKM Line B 11,677 Spare 1 x 350 MVA 220/220 PST 10,223 Subtotal 33,577

TOTAL 824,869 Notes : a) Costs are given in NZ $ '000 b) Costs are expressed in Mar 2005 terms

PB Associates


Table 16 : Cost estimate for monopole/bipole HVDC line in 2017 – 2010 Total Costs


Project Man.

Contingency

Escalation

IDC Total ($'000)


45,352 2,942 2,415 2,535 7,127 3,032 63,403


22,167 1,995 1,208 1,269 3,566 1,762 31,967

2017 WKM terminal station - 350 kV dc, 1 x 700 MW

97,913 8,812 5,336 5,603 15,750 12,634 146,048

work OTA terminal station - 350 kV dc, 1 x 700 MW

96,913 8,722 5,282 5,546 15,589 12,505 144,557

2 x 700 MVA 350 kV monopole 200km ORT – WKM

84,202 4,210 4,421 8,852 13,611 10,751 126,047

1 x 700 MVA 350 kV cables ORT – OTA

26,215 2,097 1,416 2,797 4,354 3,542 40,421

Resource consent 5,190 156 267 540 824 1,765 8,741 Easements 51,290 - 2,565 2,693 7,569 17,704 81,820 Remove ARI – PAK 110 kV

Line 4,123 - 206 10 581 178 5,099

Shift 2 x 75 MVA PST’s 422 55 24 25 70 33 629 SUBTOTAL 366,267 24,052 19,516 26,066 58,348 59,112 553,362

2021 WKM terminal station - 350 kV dc, 1 x 700 MW

97,913 8,812 5,336 5,603 15,750 12,109 145,523

work OTA terminal station - 350 kV dc, 1 x 700 MW

96,913 8,722 5,282 5,546 15,589 11,985 144,037

1 x 700 MVA 350 kV cables ORT – OTA

26,215 2,097 1,416 2,797 4,354 3,439 40,318

Uprate HLE-HLY line by 10% 1,118 34 58 60 170 57 1,497 SUBTOTAL 222,159 19,665 12,091 14,006 35,863 27,590 331,374


630 57 34 36 101 45 903

work 1 x 100 MVAr capacitors OTA 220 kV

22,167 1,995 1,208 1,269 3,566 1,571 31,776

1 x 300 MVAr SVC WRU 220 kV

22,167 1,995 1,208 1,269 3,566 1,571 31,776

SUBTOTAL 44,965 4,047 2,451 2,573 7,233 3,187 64,456 2026 1 x 350 MVA 220/220 kV PST

OTA-WKM Line A 10,203 918 556 584 1,641 723 14,625

work 1 x 350 MVA 220/220 kV PST OTA-WKM Line B

10,203 918 556 584 1,641 723 14,625

Spare 350 MVA PST 9,185 551 487 511 1,437 621 12,792 SUBTOTAL 29,590 2,388 1,599 1,679 4,719 2,068 42,043

3.6 400 KV LINE IN 2021 This alternative is for the installation of the 400 kV line in 2021. It requires the both the incremental upgrade packages. The cost estimate is provided in tables 17 and 18.

PB Associates



($,000) 2010 2021 Deferment Package 303,9512021 2 x 1200 MVA 400 kV circuits ORT – WKM 261,980

2 x 1000 MVA 400 kV cables ORT – OTA 97,641 2 x 50 MVAR 400 kV switched shunt reactors OTA 5,365 3 x 500 MVA 400/220 kV transformers OTA 118,062 3 x 500 MVA 400/220 kV transformers WKM 79,461 Remove ARI – PAK 110 kV bonded double circuit line 4,329 Shift 2 x 75 MVA PST’s at ARI 501 Uprate HLE-HLY 670/614 MVA to 737/675 MVA (10%) 1,209 Subtotal 568,547

2025 1 x 30 MVAr capacitors BOB 220 kV 721 TOTAL 873,220 Notes : a) Costs are given in NZ $ '000

b) Costs are expressed in Nov 2005 terms

Table 18 : Cost estimate for 400 kV line in 2021 – 2010 Total Costs Year Component Base Design/

Investigate

Project Man.

Contingency

Esca= lation

IDC Total ($'000)


45,352 2,942 2,415 2,535 7,127 3,032 63,403


164,736 3,960 8,435 9,238 24,947 21,567 232,883


22,167 1,995 1,208 1,269 3,566 1,762 31,967


22,167 1,995 1,208 1,269 3,566 1,571 31,776

2021 400 kV Transmission lines (x 2)

143,213 7,161 7,519 15,055 23,150 18,730 214,828

work Property 92,991 - 4,650 4,882 13,723 29,623 145,869 Environmental 7,636 - 382 783 1,178 2,767 12,746 400 kV Cables (x 2) 83,176 8,318 4,575 8,962 14,059 12,091 131,181 Switched shunt reactors at

Otahuhu sub 4,688 422 255 268 754 408 6,795

Otahuhu substation works (incl. transformers)

103,156 9,284 5,622 5,903 16,594 8,974 149,532

Whakamaru substation works (incl. transformers)

69,428 6,249 3,784 3,973 11,168 6,040 100,642

Shift 2 x 75 MVA PSTs to ARI-HAM line

463 14 24 25 70 33 630

Dismantling of ARI-PAK line 4,003 120 206 16 582 212 5,139 Uprate HLE-HLY line by 10% 1,118 34 58 60 170 61 1,501 SUBTOTAL 509,874 31,600 27,074 39,929 81,449 78,938 768,863


22,167 1,995 1,208 1,269 3,566 1,571 31,776


630 57 34 36 101 45 903

PB Associates


APPENDIX A Comparison of the PB Associates and Transpower cost estimates for the

400 kV Investment Proposal

PB Associates


In table A1, a comparison is provided of the PB Associates and Transpower estimates of the former’s January 2006 and the latter’s early 2005 base costs for the 400 kV Investment Proposal. Our understanding of the Transpower estimates is based on the limited costing information made public in the Grid Upgrade Plan in which the Investment Proposal was described, and more detailed cost estimates provided by Transpower to the Commission on 16 and 17 March 2006. Given the late submission of these detailed rates, when this report was already due for completion, PB Associates has not been able to further investigate the detailed rates and how they were derived.

Table A1 : Comparison of base costs

PB Transpower

Component Base Base Difference

400 kV Transmission line 143.2 120 23.20 Property 91.5 97 (5.50) Environmental 7.6 11 (3.40) 400 kV Cable 84.5 84 0.50 Whakamaru substation 400 kV 18.1 6.7 11.38 Whakamaru substation 220 kV 16.2 1.3 14.94 Transformers (x 3) 19.6 19 0.65 Whakamaru substation general 6.1 (6.10) Otahuhu substation 400 kV 42.1 25.5 16.62 Otahuhu substation 220 kV 18.6 6.8 11.79 Transformers (x 3) 18.9 18.9 (0.01) Otahuhu substation general 15.5 (15.50) Shunt reactors at Otahuhu substation

4.6 4.9 (0.30)

Dismantling ARI-PAK line 4.0 4 0.00 Design/investigate 28.2 20 8.20 Project management 24.9 25 (0.10)

522.0 465.6 56.37

The major differences that exist appear to be for the following reasons :

• The rates for 400 kV switchgear and associated equipment that PB Associates are using are substantially higher than that provided by Transpower on 16 March 2006. The PB Associates rates are based on an average of quotations from suppliers (ABB and Siemens), as well as rates obtained from the PB UK office. The basis for the Transpower rates is not known.

• The rates for 220 kV switchgear and associated equipment that PB Associates are using are substantially higher than that provided by Transpower on 16 March 2006. The PB Associates rates are based on supplier quotations cross-checked against the ODV handbook rates. The basis for the Transpower rates is not known.

PB Associates


• Transpower allows for general amounts related to substation works, including site preparation, buildings, tie-lines, etc. These costs are included in the PB substation costs.

• The basis on which the Transpower costs for the new 220 kV substation at Whakamaru were calculated is not known and no breakdown of the cost estimate has been provided. It is noted however that merely the cost of six circuit breakers, using Transpower’s own rates provided on 16 March 2006, basing the number of breakers on their single line diagrams for the proposed Whakamaru substation extension, exceed the $ 1.3 million allowed in their estimate.

• The significant difference in the cost of the overhead line arises mainly from differences in conductor cost – quotations received by PB Associates in January 2006 indicate that there have been substantial recent increases in the cost of conductors.

By way of further comparison, in tables A2 to A5 below, a comparison is provided between the costs estimated by PB Associates and Transpower for escalation, interest during construction, contingency amounts and the total estimated 2010 costs. The basis for Transpower’s calculation of the impact of changes in the exchange rate is not clear.

Note that all the costs below are presented in NZ$ million.

Table A2 : Comparison of escalation costs

PB Transpower

Component Escalation Escalation Difference

400 kV Transmission line 23.2 13 10.17 Property 13.6 3 10.59 Environmental 1.2 1 0.19 400 kV Cable 14.2 8 6.24 Whakamaru substation 8.6 8.64 Otahuhu substation 12.8 11 1.77 Shunt reactors at Otahuhu substation

0.8 0.75

Dismantling ARI-PAK line 0.6 0.58 Design/investigate * 0.00 Project management * 2 (2.00)

TOTAL 74.9 38.0 36.93 * For the purpose of calculating the 2010 costs, the design and project management costs have been included with the construction component to which they relate. Escalation, interest during construction and contingency amounts are therefore not separately calculated on these amounts.

We have not had the opportunity to examine Transpower’s escalation calculation and can therefore not comment on the underlying reason for the large difference in this cost estimate. Note that all the PB costs have been escalated up to 30 June 2010 values, in accordance with the economic evaluation approach which uses this as the base date for comparison.

PB Associates


Table A3 : Comparison of interest during construction costs

PB Transpower

Component IDC IDC Difference

400 kV Transmission line 18.6 8 10.59 Property 29.2 33 (3.79)Environmental 2.8 4 (1.23)400 kV Cable 12.1 7 5.07 Whakamaru substation 4.6 4.56 Otahuhu substation 6.7 4 2.74 Shunt reactors at Otahuhu substation 0.4 0.41 Dismantling ARI-PAK line 0.2 0.21 Design/investigate * 5 (5.00)Project management * 3 (3.00) TOTAL 74.6 64.0 10.55

The interest during construction estimates are not very different if the differences in the base case cost and inflation are taken into account. It is however noted that the manner in which this cost is made up, does differ markedly. Since we have not had access to the Transpower calculations, we cannot comment on why this is the case.

Table A4 : Comparison of contingency costs

PB Transpower

Component Contingency Contingency Difference

400 kV Transmission line 15.1 28 (12.94)Property 4.8 4.83 Environmental 0.8 0.79 400 kV Cable 9.1 20 (10.91)Whakamaru substation 3.1 3.07 Otahuhu substation 4.5 17 (12.46)Shunt reactors at Otahuhu substation 0.3 0.27 Dismantling ARI-PAK line - 0.00 Design/investigate * 0.00 Project management * 0.00 TOTAL 37.7 65.0 (27.34)

Our estimates make provision for unforeseen expenses on all components, while the Transpower approach seems to focus only on those cases where large project cost variations are deemed possible.

Finally, in table A5 below a comparison is provided between the total project cost estimates for 2010.

PB Associates


Table A5 : Comparison of total 2010 project costs

PB Transpower

Component 2010 cost 2010 cost Difference

400 kV Transmission line 214.7 167 47.72 Property 143.7 133 10.70 Environmental 12.8 15 (2.24) 400 kV Cable 133.0 119 14.03 Whakamaru substation 77.9 77.93 Otahuhu substation 115.1 128 (12.85) Shunt reactors at Otahuhu substation

6.8 6.79

Dismantling ARI-PAK line 5.1 4 1.14 Design/investigate * 26 (26.00) Project management * 30 (30.00)

TOTAL 709.2 622.0 87.22

In the absence of otherwise compelling evidence, and based on our verification and double-checking of the project costs estimates and underlying rates, PB Associates is comfortable with its cost estimates discussed above and see no reason to amend these.

PB Associates


APPENDIX B The Property Group Report: Estimate of Easement Costs – March 2006

f

Estimate of Easement Costs400kV North Island Electricity Grid Upgrade

The Property Group Limited’s Report to Parsons Brinckerhoff Associates Limited : March 2006

THE PROPERTY GROUP LIMITED : TABLE OF CONTENTS

PARSONS BRINCKERHOFF ASSOCIATES L IMITED : 03/06/45

Table of Contents Section Title Page 1 Introduction 1 2 Project Understanding 2 3 Assessment Methodology 3 4 Comments 5 Appendix One Schedule of Easement Costs per Territorial Local Authority

Contact:David Macdonald

Sector Manager Energy Telephone: (04) 470 6102 Facsimile: (04) 470 6101

The Property Group Limited PO Box 2874

WELLINGTON

© The Property Group Limited This document and its contents remain the property of The Property Group Limited. Any unauthorised employment or reproduction in full or in part

is forbidden.

Strictly Confidential : March 2006

THE PROPERTY GROUP LIMITED : INTRODUCTION

1 PARSONS BRINCKERHOFF ASSOCIATES LIMITED : 03/06/45

1 Introduction This exercise follows on from the earlier general assessment undertaken for the 400kV North Island Grid Upgrade. The objective is to achieve greater accuracy of assessment by looking at the routes in greater detail and a general assessment and analysis per property.

THE PROPERTY GROUP LIMITED : PROJECT UNDERSTANDING


2 Project Understanding

2.1 Scope of Work A desktop evaluation of the indicative easement procurement costs for: • 400kV OTA-WKM route with last 9km underground - 46m towers,

60m easements. • HVDC OTA-WKM route with last 9km underground - 27m towers,

30m easement. • 220kV double circuit OTA-WKM route with last 9km underground

- 36m towers, 50m easement. • Upgrade of existing A and B OTA-WKM with duplex circuits. A s s e s s m e n t

• These estimates are NOT a valuation of the compensatory affect. • Assessments assume negotiated acquisition of easement rights on

the basis of accepted valuation principles as at the date of this report.

• These estimates have been prepared using data information readily available from: − Terraview. − Land Information New Zealand (“LINZ”). − Valuation roll information. − Roll assessment. − Worksheet adjustments. − Land use clarification.

• No individual properties have been inspected although LINZ aerials have been used where necessary.

• Assessments have been prepared on the basis of the general easement conditions and requirements. There has been no perusal of actual easement documents.

• Assessments assume negotiated easements over most rural properties and total acquisition of lifestyle and residential properties affected.

• The assessment for the 400kV, HVDC and 220kV have been prepared with no separate discount for the existing 110kV to be decommissioned. This affect however is recognised in inspected roll assessments. This adjustment was considered adequate for the purposes of this report

• The existing 220kV upgrade has been based on the incremental affect of additional stringing and the consideration of existing statutory rights.

THE PROPERTY GROUP LIMITED : ASSESSMENT METHODOLOGY


3 Assessment Methodology • Definition of lines to be assessed on cadastral plans. Line fix point

being as supplied by PB Power Limited. • Identification and use classification of individual properties

affected by easement on cadastre. • General assessment of affect on value:

− For the new route easement and injurious affect have been assessed. Percentage ranges have been used to adjust for affects on land and likely affect on capital values.

− For the upgrade only the incremental affect of the additional conductors has been accounted for.

− Determine roll assessment dates: > Individual property analysis for land value. > Roll values percentage adjusted to market values on basis

of land use category and locality factor.

Assessment Considerations (400kV; HVDC: 220kV) R u r a l P r o p e r t i e s

• Market Value - Roll value adjusted by market measures on land type averages for each valuation area. Market movement adjusted based on sales 0-6 months and 0-12 months where limited number of sales. From this averages for each land use classification was determined.

• Easement and Injurious Affect Area - Assessment made inclusive of injurious affection; this varies with the easement size and tower heights, property size and value and line location.

No adjustment has been made for the relocation of major, substantial improvement unless specifically noted on the aerial plans. L i f e s t y l e a n d R e s i d e n t i a l P r o p e r t i e s

• Consideration given to total acquisition. • The affect of the easement will be the difference between the

acquisition and the disposal cost on a before and after basis. Figures assume disposal on the same market at the same time. These were considered on a individual basis although there was no ability, without property inspection, to fully assess the affects on improvements. There has been no consideration for business loss.

L o s s o f P r o d u c t i o n

• An allowance of 10% of the easement fee has been added for production loss over the construction period.

E a s e m e n t C o s t s P e r P r o p e r t y

• Survey $1,500.00.

• Disturbance $10,000.00 covers: − Legal. − Valuation. − Additional disturbance costs.

E a s e m e n t C o s t , W h e r e A c q u i r i n g , P e r P r o p e r t y

• Acquisition cost $10,000.00 covers: − Legal. − Valuation. − Additional disturbance costs.

• Disposal cost covers: − Agency 2.5% of disposal sum. − Legal. − Valuation. − Survey.

Assessment Considerations ( 220kV Duplex Upgrade) R u r a l P r o p e r t i e s

• Market Value: Roll value adjusted by market measures on land type averages for each valuation area.

• Easement and Injurious Affect Area: Before and after assessment made inclusive of injurious affection; property size and value and line location. No adjustment has been made for the relocation of major, substantial improvement unless specifically noted on the aerial plans.

L i f e s t y l e a n d R e s i d e n t i a l P r o p e r t i e s

• Consideration given to total acquisition • The affect of the easement will be the difference between the

acquisition and the disposal cost on a before and after basis. Figures assume disposal on the same market at the same time. These were considered on an individual basis although there was no ability, without property inspection, to fully assess the affects on improvements. There has been no consideration for business loss.

L o s s o f P r o d u c t i o n

• An allowance of 10% of the easement fee has been added for production loss where appropriate over construction period.

THE PROPERTY GROUP LIMITED : ASSESSMENT METHODOLOGY


E a s e m e n t C o s t s P e r P r o p e r t y

• Survey $1,500.00. • Disturbance $10,000.00 covers:

− Legal. − Valuation. − Additional disturbance costs.

E a s e m e n t C o s t , W h e r e A c q u i r i n g , P e r P r o p e r t y

• Acquisition cost $10,000.00 covers: − Legal. − Valuation. − Additional disturbance costs.

• Disposal cost covers: − Agency 2.5% of disposal sum. − Legal. − Valuation. − Survey.

General Assumptions • That any subdivisional potential is intrinsic in the land value. • We have assumed that impact on significant improvements will

be avoided, mitigated or minimised such affects cannot be detailed without inspection of individual properties. Accordingly there are no cost additions for the relocation of improvements. Where it is evident that there is a high ratio of improvements to capital value an adjustment to the injurious affect factor has been made.

• In assuming that all smaller lifestyle blocks and residential properties will be acquired the discount for the creation of the easement on resale has been adjusted having regard to the degree of affect on the property, recognising to its size and capital value.

• For the 220kV A and B upgrade where the lines traverse urban Auckland it has been considered that it may be appropriate to acquire and dispose of properties. However as owners have accommodated the lines to date the consideration of net costs are seen as an indicator of easement costs in this environment. This will depend on the limitations on the owner under covenants within the easement document. No consideration has been given to compliance or non-compliance in respect to underbuilds.

• There is no easement costs for underground cabling.

Assessment Summary See Table One below:

Table One

Lines Assessed Easement Costs Gross Easement Costs Net

1 400kV (See Note One) (See Note Three) 47m tower; 60m easement

$111,700,000 $66,300,000

2 HVDC (See Note Three) 27m tower; 30m easement

$93,900,000 $44,600,000

3 220kV (See Note Three) 36m tower; 50m easement

$104,300,000 $56,700,000

4 220kV A and B OTA-WKM (see Note Two) New Duplex Circuits

$336,700,000 56,700,000 Range to $92,100,000

NB : These figures include some 379 urban properties in Manakau City that may have to be acquired and on sold.

$204,700,000 $30,500,000 Range to $49,200,000

Note One Should tower heights increase to 67 - 70 meters then an addition 20% increase in compensation would apply. As this is a general rate it does not take into account specific affects per property.

Note Two There is difficulty in considering easement costs under this scenario as the assessment process is untested and continually developing especially in recognition of the statutory easements. A worse case scenario was also modelled, that extended the cost estimate to $92,100,000. The consideration of incremental affect is extremely subjective. Accordingly we have provided a range. This will require further investigation to narrow the range however this needs to be discussed with the manager preparing the total estimates.

Note Three Without inspection and property details 15% could be considered as an addition to cover subdivisional potentials that may exist but not be disclosed in the land value.

THE PROPERTY GROUP LIMITED : COMMENTS


4 Comments These figures are only for use in the initial cost estimation of the transmission alternatives being considered by PB Power Limited. The figures in the schedule are supported by detailed calculation sheets.

Report Prepared By Report Reviewed By

David Macdonald Kevin O’Brien Sector Manager Energy Manager Special Projects

APPENDIX ONE

PARSONS BRINCKERHOFF ASSOCIATES L IMITED : 03/06/45

Appendix One

Schedule of Easement Costs per Territorial Local Authority

APPENDIX ONE

1 PARSONS BRINCKERHOFF ASSOCIATES L IMITED : 03/06/45

Schedule of Easement Costs per Territorial Local Authority

Summary of the 400kV Route Options under Consideration in $m:

400kV HVDC 220kV Low Med High Low Med High Low Med High

Manakau Net 8.3 8.5 9.2 6.2 6.3 6.9 7.3 7.4 8

Gross 25.4 25.7 26.3 24.4 24.5 25.1 25 25.2 25.8

Franklin Net 9.4 10 10.2 7 7.4 7.5 8.2 8.7 8.9

Gross 23.5 24.2 24.4 22.6 23 23.2 23.1 23.7 23.8

Matamata Net 6.7 7.4 8.3 4.7 5 5.7 5.7 6.4 7

Gross 9.7 10.4 11.3 8.1 8.5 9.1 9 9.6 10.3

Waikato Net 10.3 11.8 12.4 6.9 7.7 8.2 9 10.1 10.8

Gross 13.2 14.7 15.3 10.2 11 11.5 12 13.3 13.8

Waipa Net 8.9 9.5 10.7 6 6.3 6.9 7.7 8.2 8.9

Gross 11.2 11.9 13 8.7 8.9 9.5 10.2 10.7 11.4

Sth Waikato Net 13.7 14.9 15 8.4 9 9 11.7 12.7 12.7

Gross 17.5 18.8 18.9 12.6 13.2 13.2 15.7 16.8 16.8

Taupo Net 0.5 0.5 0.5 0.3 0.3 0.4 0.4 0.4 0.4

Gross 2.5 2.5 2.5 2.3 2.3 2.3 2.4 2.4 2.4

Total Net 57.8 62.6 66.3 39.5 42 44.6 50 53.9 56.7

Gross 103 108.2 111.7 88.9 91.4 93.9 97.4 101.7 104.3

Adjustments

Subdivision 115% 66.47 71.99 76.245 45.425 48.3 51.29 57.5 61.985 65.205

70m Towers 120% 79.764 91.494

APPENDIX ONE

2 PARSONS BRINCKERHOFF ASSOCIATES L IMITED : 03/06/45

Summary of the 200kV Upgrade Under Consideration in $m: Low High

Manakau Net 30.50 49.2

Gross 203.30 204.7

Otorohanga Net 1.00 1.2

Gross 1.00 1.2

Papakura Net 0.50 0.7

Gross 1.50 1.7

Franklin Net 4.50 7.8

Gross 28.50 28.9

Waikato Net 11.80 18.4

Gross 47.10 49.3

Waipa Net 7.50 13.6

Gross 48.30 49.4

Taupo Net 0.90 1.2

Gross 1.30 1.5

Total Net 56.70 92.10

Gross 331.00 336.70

www.propertygroup.co.nz

The Property Group LimitedLevel 10 86 - 96 Victoria Street PO Box 2874 Wellington Telephone +64 4 470 6105 Facsimile +64 4 470 6101 Email [email protected]

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