STAY IN BUSINESS - BUSINESS PROCESS. Project Priority Scoring

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1 INTRODUCTION STAY IN BUSINESS - BUSINESS PROCESS Project Priity Scing The SIB Business Process allows f all projects developed under Non Expansion Capital Funding be assessed and priitised. This is enable management make decisions on priities of projects when funding limits are set annually. The ranking process was developed f use within the DBNGP environment and incpated the Cpate Risk Analysis Matrix f the risk assessment and ranking. BUSINESS PROCESS The flow chart below shows the business process developed f the DBNGP. Page 1 21/07/2010

2 RISK ASSESSMENT Risk assessment is based on the DBP Cpate Qualitative Risk Analysis Matrix with the following Qualitative Risk Frequency and Consequence tables: Frequency Qualitative Risk Analysis Matrix Level of Risk Consequence Trivial Min Severe Maj Catastrophic E Frequent LOW INTERMEDIATE HIGH EXTREME EXTREME D Occasional LOW LOW INTERMEDIATE HIGH EXTREME C Unlikely NEGLIGIBLE LOW INTERMEDIATE HIGH HIGH B Remote NEGLIGIBLE NEGLIGIBLE LOW INTERMEDIATE HIGH A Hypothetical NEGLIGIBLE NEGLIGIBLE NEGLIGIBLE LOW INTERMEDIATE Consequence Definitions Impact on DBP People Environmental Impact Supply / Outrage Loss 5 Catastrophic Would threaten the survival of DBP without an additional unplanned equity contribution. Me than two fatalities; Me than four individuals with life threatening injuries permanent disabilities. Effects widespread; viability of ecosystems species affected; Permanent maj changes. Widespread outrage attributable DBP - eg. Total outage, Longfd, Auckland; Interruption of supply f 1 week; Curtailment (>30% capacity) f 2 weeks. >$25 m 4 Maj Would threaten the effective operation of DBP f a substantial period, including its ability raise capital, have a significant effect on how DBP will operate in the future. Up two fatalities; Up four individuals with life threatening injuries permanent disabilities; Me than four LTIs MTIs. Maj off-site impact; long term (2 years me) severe effects; rectification difficult; Maj impact in an area of high conservation value special significance (eg National Heritage list, Class A Reserves, National Parks, where the area of impact could be localized very localized). Maj alarm and anger - Interruption of supply f 1 day but <1 week; Curtailment (>30% capacity) f 3 days but <2 weeks. $10 M $25 M 3 Severe No threat the effective operation of DBP, but exposes DBP unacceptable cost consequences. Up four LTIs MTIs. Localised (<1ha) and sht-term (<2yr) effects; easily rectified; Significant impact upon cultural and heritage sites; rare and endangered fla/fauna; Chemical release contained with outside assistance resulting in the impacts described above. Widespread complaints and anger; Curtailment (>30% capacity) f <3 days; Curtailment (<30% capacity) f 2 days but <1week. $2.5 M $10 M 2 Min No significant impact on DBP, issues are dealt with internally. Injuries requiring first aid treatment. Effect very localised (<0.1ha) and very sht-term (weeks), easily rectification; Min impact upon cultural and heritage sites; rare and endangered fla/fauna; Onsite chemical release which is contained without outside assistance with the impacts described above. Limited complaints and anger; Annoyance, concern and some complaints; Curtailment (<30% capacity) f <2 days. $0.5 M $2.5 M Page 2 21/07/2010

3 1 Trivial No significant impact on DBP, issues are routinely dealt with by operational areas. Injuries not requiring First Aid other treatment. No effect; Min on-site effects rectified rapidly with negligible residual effect; Min leak not contaminating. No impact; no restriction of pipeline supply; No public/business concern complaints. <$0.5 M Frequency Definitions Frequency Definitions Indicative Frequency (To be read in conjunction with Frequency Definitions) E Frequent Event is expected occur once per year me. 1 me per year. D Occasional Event may occur occasionally in the life of the pipeline. 1 in 10 years. C Unlikely Event is unlikely occur within the life of the pipeline, but it is possible. 1 in 100 years. B Remote Event is not anticipated occur f this pipeline at this location. 1 in 1,000 years. A Hypothetical Event is theetically possible, but has never occurred on a similar pipeline. 1 in 10,000 years. RISK RANKING MODEL This model ranks projects improvement initiatives in terms of Risk Sce and Efft Implement as below.. Risk Sce Risk Sce is the sum of Risk Facts f each of the following Risk Categies: People Environmental Impact Outrage/Reputation Loss/Asset Damage Loss of Supply Facts: Consequences Trivial Min Severe Maj Catastrophic Likelihood Frequent Occasional Unlikely Remote Hypothetical Page 3 21/07/2010

4 The Risk Facts ranges have been designed enable distinct levels between each of the risk level. Range Lowest Highest Negligible Low Intermediate Implementation Sce High 6 30 Extreme Implementation Sce is essentially the efft implement implement and complete the proposed project. Ie, it is the cost measure of the resources required implement the solution. Implementation Sce is calculated by dividing the Risk Sce by the Project Cost. This measure allows the priitisation of projects not only on Risk Sce but also on Project Cost. Eg, f two projects with similar Risk Sces, the one with higher Implementation Sce (and hence lower cost) will rank higher and have me priity f funding. Operating Cost The Ranking Model allows f the input of Cost Savings which is considered be the reduced operating costs due rectification of problem, reduction in maintenance costs (spares etc), fuel costs, and other costs (eg SCADA, comms etc). From this Cost Savings and the Project Cost, a Simple Payback period can be calculated enable comparison of different projects based on cost savings and payback period. Page 4 21/07/2010

5 PROJECT CATEGORIES The SIB Ranking Model allows f the grouping of proposed projects in the following categies: Carryover These are previous year s approved projects that are continued in next financial year Mandaty These projects have been assessed as p priities and deemed be mandaty due : o Integrity/Safety: required improve maintain pipeline integrity and safety Eg, coating and earthing replacement o Equipment Obsolescence: operability and maintainability Eg, SCADA upgrade, CCVT Replacement replacement and/ upgrade f o Policy: incpate new industry standards, operational, health and safety policy licensing and regulaty requirement Eg, Management of change control, vehicle replacement programme o Netwk and IT: improve and maintain system security and/ maintaining and improvement in billing system Eg, IT netwk security upgrade, DBP IT implementation FEED These are low cost FEED studies define next financial year s SIB projects. Ranked These are discretionary projects improve operability and maintainability, Eg, Miscellaneous plant and equipment replacement. These projects will be risk ranked determine their priities meet the required funding limit RISK RANKING WORKSHOP The risk ranking process is conducted in a wkshop environment attended by all business units. The results will be presented the PRC f approval. F each of the approved projects, a fully developed business case and justification will need be presented the PRC approval befe proceeding. Once each of the projects is justified and approved, it will be given a netwk number and fund can be drawn on it. At end of each month, the project spending will be summarised and monited against budget. During November refecast, the actual spending and budgets will be reviewed in me details. In addition, the April Business Planning Process will instigate a review process f budget and preparation f next financial year s fecast and accruals. Page 5 21/07/2010