IPAN – Asset Health and Risk

What is the IPAN?

The Industry Practice Application Note (IPAN) for Replacement Planning, published by the AER on 25 January 2019, is, as the name suggest, an asset replacement planning guideline for utilities that report to the AER. The AER has taken a different approach to its counterpart in the UK, OFGEM, and has opted to provide broad guidelines, and an explanation of the motive principles, to guide asset replacement planners to consider a range of relevant issues when seeking to justify individual projects and broader programs of works. The IPAN says: 

The NER does not require the NSP to adopt or apply a specific planning framework, nor does it specifically require compliance with international standards. Rather the onus is on each NSP to demonstrate it has made prudent and efficient decisions to ensure it meets the required service level outcomes and to provide evidence of the efficient level of expenditure required to achieve the capital expenditure objectives. In doing so, it should make reference to good electricity industry practice. 

Asset retirement and technical end of life 

The IPAN discusses principles around: 

• Calculating an Asset Health Index (or similar metric). 
• Linking AHI to end of life, probability of failure and remaining service life. 
• Risk associated with EoL assets, including reliability, safety and compliance. 
• Additional costs associated with ongoing operation of the asset. 
• Quantifying the economic benefits of asset retirement or replacement. 

The above principles all align with the CBRM methodology and the CNAIM, making both methodologies attractive to an NSP wishing to align with the IPAN. Other methodologies may also be compliant with the above principles. Any methodology used to justify REPEX programs and projects should demonstrably satisfy the above principles and be well documented. The AER is mature in reviewing and considering economic cases based upon asset health and risk calculations and will seek to understand the calculations being performed from first principles. They will also wish to test the modelling and to run sensitivity analyses and compare the outputs to actuals.  

Conclusion 

The IPAN outlines guidelines for asset replacement planning best practice and compliance.

• Asset health and condition should be assessed.
• Asset health should be linked to the likelihood of a failure.
• Likelihood of failure can indicate the remaining service life of an asset.
• Consequences of a failure should be monetised to enable economic modelling.
• The risk associated with end-of-life assets is a function of the likelihood of a failure and the consequences of a failure.
• Risk is a real cost to customers and the economy.
• The risk avoided by replacing or retiring an asset should be included in any economic options analysis.
• An asset should be replaced only if it is either the lowest cost option to meet the applied service standard or a positive net present value.

These guidelines should ensure that either the minimum service standards are maintained or that economic value is being added to the network.

Further read: IPAN – Replacement planning is no longer like-for-like