7 November 2016
F-Factor Incentive Scheme RIS
Powerline Bushfire Safety Program
GPO Box 2392
MELBOURNE VIC 3001
Jemena Electricity
Networks (Vic) Ltd
ABN 82 064 651 083
Level 16, 567 Collins Street
Melbourne, VIC 3000
PO Box 16182
Melbourne, VIC 3000
T +61 3 9173 7000
F +61 3 9173 7516
www.jemena.com.au
cc: [email protected]
F-Factor Incentive Scheme RIS
Thank you for allowing Jemena Electricity Networks (Vic) Ltd (JEN) the opportunity to
respond to this RIS.
JEN’s submission is set out in the following paragraphs. For ease of understanding,
we have categorised our submission into the following three sections: commentary
on the background information presented as part of the RIS, commentary on the RIS
itself, and JEN’s response to the RIS recommendations/conclusion.
Comments on RIS background information
The background discussion provided in the RIS clearly targets fire prevention in the
areas of country Victoria susceptible to bushfires with potential extreme
consequences; of which none overlap the JEN area. The background discussion
also appears to have an underlying focus on the systems, plans and fire prevention
strategies developed for those areas.
As such, some of the background discussion, presented in general terms, does not
correlate with JEN’s current policies and practices. These inconsistencies, however,
do not influence JEN’s acceptance of the fundamental principles of the proposed new
f-factor scheme (i.e. JEN’s comments are provided to complete the background
discussion, not to correct the message or justification for change).
JEN’s detailed comments on the RIS background information are:
a) Section 1.3.4. “Use of Discretionary Capital”
JEN disagrees with the message that JEN’s discretionary capital is not spent in
the high bushfire risk area (HBRA), as provided for in JEN Bushfire Mitigation
Plan (BMP). By way of example, JEN has replaced all high voltage (HV) and
subtransmission (ST) wood crossarms with steel crossarms; designed to
significantly reduce the incidence of pole top fires. This program—started in the
late 1990s—has also resulted in the insulators and conductor ties being replaced
with the crossarms. Examples of other dedicated, “discretionary capital” projects,
are the replacement of neutral screened services and the installation of an Arc
Suppression Coil (ASC) at the Sydenham zone substation. All of this work is
over and above the routine replacement required to address defects identified
with reference to condition criteria set out in the JEN’s Asset Inspection Manual
(AIM). The “discretionary capital” projects were identified as prudent and efficient
through risk assessment workshops and the analysis of relevant Asset Class
Strategies; all in adherence to the JEN BMP.
b) Section 1.3.1. Exogenous variables
JEN agrees with the statement “Legislation cannot eliminate this risk” - however
suggests that legislation could be strengthened in respect to greater clearance
spaces and mandated removal of hazardous trees which would further reduce the
risk (since a fire needs an ignition source and fuel). The f-factor scheme is
legislation targeting the ignition source from utility assets and the Electric Line
Clearance Regulations is legislation aimed at fuel component of a fire. JEN
suggests that in geographies categorised as Severe or Extreme the fuel reduction
component could be increased along with relevant increase in funding.
c) Section 1.3.2. Prohibitive costs of network fire elimination
In JEN’s experience, undergrounding the network significantly reduces the risk of
fire ignition, but it does not “eliminate” fire starts. All “underground” electricity
networks have components above ground - for example, connections in pits or
pillars, substations, switching stations and cable connections to the overhead
network. In very rare cases the buried cables could fault, resulting in an above
ground fire, under favourable conditions.
Overall, JEN accepts the reasoning to introduce an incentive scheme for the
justification of projects on the basis of likelihood to reduce sources of fire ignition
from JEN electricity assets.
The Incentive
There is a discrepancy in the average annual ignition risk unit (IRU) between JEN’s
calculation and that quoted in the RIS. JEN’s calculation of the average cumulative
annual IRU over the 2012 to 2015 period (inclusive) is 9.37, compared with the 9.7
quoted in the RIS. JEN uses the RIS value of 9.7 as the foundation for providing
further information in this submission. For clarification purposes JEN does not have
any areas within its distribution area categorised as “Extreme” as defined under this
scheme.
For JEN, as with the original version of the f-factor scheme, the incentive value is not
material when compared with the expenditure required for even the smallest of
projects. As an example, rusty steel conductor replacement cost: $250k for
assessment and $660k to replace 30km totals value $910k. If the base line IRU were
to be used as an incentive, the result is 9.7 x $15k = $145.5k. If the “worst case
scenario” were to be used as an incentive the result is 4.6 (Geography Weight) x 5.0
(Time Weight) x $15k (IRU Incentive Rate) = $345k penalty or “incentive” for a single
fire ignition event.
For JEN a “cost neutral” f-factor incentive scheme (with reference to section 3.5.2.
Symmetric Method in the RIS), based on the analysis in the RIS would see $145.5k
spent on fire prevention from electrical assets across the whole distribution area, i.e.
not just the HBRA, compared with the $1,652.5k incentive of the existing scheme
(calculated from a target of 66.1 and fire start rate of $25k / event). In JEN’s
recorded fire start history, there have been no “worst case scenario” events, negating
the justification of using a single $345k incentive.
The proposed IRU base line value of 9.7 also hides the true cost of fire prevention for
JEN. Over the past 2 decades JEN has invested significant effort and cost in fire
prevention. It is not possible to extract a single value which exclusively represents
fire prevention, as all our operational and capital expenditure programs are designed
to cover multiple drivers, such as fire mitigation, public safety, supply quality and
supply reliability. The biggest cost incentive continues to be the threat of loss of life,
property loss / damage and flow on consequences including the potential for legal
actions (e.g. class action) against JEN to arise.
For JEN, the proposed f-factor incentive is not sufficient to change the fire prevention
risk tolerance. JEN’s response to fire risk will continue to be managed under existing
asset management tools at its disposal in the prevention of fire starts.
JEN, through its review of the new f-factor incentive scheme, expects immaterial
reward against the baseline for 9 out of 10 years, however could suffer material
penalties under the proposed scheme for the 1 in 10 year extreme fire event—
especially if the fire occurred in the Coolaroo zone substation region (the only area of
Jemena that attracts a ‘severe’ geographical risk factor). That is, if a “worst case
scenario” fire started in the Coolaroo area on an Extreme fire rated day the penalty
for a single event is $345k.
Recommendations/conclusion
JEN welcomes this legislation, which aims to minimise electricity as an ignition
source and, limit the amount of fuel (i.e. trees) available to carry a fire, however,
requests the following changes to the scheme or legislation to support the scheme:
1. The scheme should distinguish between fire types. The scheme was designed
with the intent of focusing on bushfires, not smouldering pole-tops or scorched
possums and so JEN proposes the scheme be amended to exclude all fires
contained to a pole top and ground fires that result in less than 1m2 of burnt land.
2. The scheme should apply a capped penalty if a ‘1 in 10 year event’ (i.e. an event
similar to Black Saturday) occurs. The penalty could be capped to equate to any
benefits achieved in the preceding 5 years. This proposal supports the DELWP
principle that the scheme be revenue neutral over time.
3. The scheme should depart from applying fixed weightings for each of the
Victorian DNSPs for the time and geography based risk factors.
4. Strengthened fuel reduction legislation (and associated funding) in geographies
categorised as Severe or Extreme. The Electric Line Clearance Regulations
could, for example, add another level of clearing requirement for Severe and
Extreme areas which is above that currently required for areas designated HBRA.
If you have any queries in relation to this submission, please contact Matthew Serpell
on telephone (03) 9173 8231 or email [email protected].
Yours sincerely
[Signed]
CAMERON HERBERT
General Manager Regulation (Acting)