January 2012 Capital Investment - National Grid

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Exhibit ___ (EIOP-19)Page 5 of 684I A. Capital Investment Plan SummaryThe Company manages its capital investment plan by system and by spending rationale.A view of planned investments segmented by system is presented in Table I-1 above,while a view of planned investments segmented by spending rationale summarizedbelow.Investment by Spending RationaleThe Company classifies its capital projects into five spending rationales based on theprimary investment driver: (A) Statutory or Regulatory; (B) Damage/Failure; (C) SystemCapacity and Performance; (D) Asset Condition; or (E) Non-infrastructure.Statutory or RegulatoryStatutory or Regulatory projects are required to respond to, or comply with statutory orregulatory mandates. These include those expenditures needed to ensure the minimumcompliance with the requirements of the North American Electric Reliability Corporation(“NERC”), Northeast Power Coordinating Council (“NPCC”), New York State ReliabilityCouncil (“NYSRC”), the Occupational Safety and Health Administration (“OSHA”), andthe PSC. It also includes expenditures that are part of the Company’s regulatory,governmental or contractual obligations, such as responding to new service requests,transformer and meter purchases and installations, outdoor lighting requests andservice, and facility relocations related to public works projects. With some exceptions,the scope and timing of work in this rationale is generally defined by others.Damage/FailureDamage/Failure projects are required to replace failed or damaged equipment and torestore the electric system to its original configuration and capability following equipmentdamage or failure. Damage may be caused by storms, vehicle accidents, vandalism orunplanned/other deterioration, among other causes. The Damage/Failure spendingrationale is typically a mandatory spending rationale of work that is non-discretionary interms of scope and timing. The Damage/Failure budget also includes the cost ofpurchasing strategic spares to respond to equipment failures.System Capacity and PerformanceSystem Capacity and Performance projects are required to ensure the electric networkhas sufficient capacity, resiliency, or operability to meet the growing and/or shiftingdemands of the system and our customers. Projects in this spending rationale areintended to reduce degradation of equipment service lives due to thermal stress, toimprove performance of facilities where design standards have changed over time, andto provide appropriate degrees of system configuration flexibility to limit adversereliability impacts of contingencies. In addition to accommodating load growth, theexpenditures in this rationale are used to install new equipment such as capacitor banksto maintain the requisite power quality required by customers and reclosers that limit thecustomer impact associated with an interruption. It also includes investment to improveperformance of the network such as the reconfiguration of feeders and the installation offeeder ties.I-36
Exhibit ___ (EIOP-19)Page 6 of 684Asset ConditionAsset Condition projects are required to reduce the likelihood and consequences offailures of transmission and distribution assets, such as replacing system elements likeoverhead lines, underground cable or substation equipment. During the previous tenyears, the Company adopted an Asset Management approach that relied on a holistic,longer-view assessment of assets and asset systems to inform capital-investmentdecisions. As part of this approach, the Company conducted assessments of majorasset classes such as circuit breakers or subsets of asset classes such as a circuitbreaker manufactured by a particular vendor. The assessments focused on theidentification of specific susceptibilities for assets and asset systems and thedevelopment of potential remedies. In light of current economic conditions, however, theCompany presents a modified approach in this Plan that reduces near-term capitalcosts. The result is greater reliance on the purchase of spare equipment to replacedamaged equipment that may fail in service for certain elements of the transmission anddistribution system. The modified approach also calls for a more targeted replacement ofassets based on their condition versus wholesale replacement based on “end of usefullife” criteria, especially for transmission line refurbishment projects. This approach willresult in lower capital investment in the near term, but may present adverse impacts onreliability and safety performance as compared to higher investment levels in the longterm. Closer monitoring of system performance as it relates to asset condition causeswill be necessary.Non-InfrastructureNon-Infrastructure projects are ones that do not fit into one of the foregoing categories,but which are necessary to run the electric system. Examples in this rationale includesubstation physical security, radio system upgrades and the purchase of test equipment.Investment by spending rationale for fiscal years FY13 to FY17 is provided in Table I-2,and Figures I-1 and I-2.Table I-2Investment by Spending Rationale ($ millions)Rationale FY13 FY14 FY15 FY16 FY17 TotalStatutory orRegulatory222.4 222.8 197.1 174.6 173.1 989.9Damage/Failure 43.7 44.4 40.8 41.2 42.8 212.9System Capacityand Performance64.2 74.4 79.5 103.3 112.0 433.3Asset Condition 85.5 103.7 155.8 173.5 182.1 700.6Non-Infrastructure6.2 4.7 5.9 5.4 5.1 27.3Total 422.0 450.0 479.0 498.0 515.0 2,364.0I-47
Page 1 and 2: Niagara Mohawk Power Corporationd/b
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January 2012 Capital Investment - National Grid

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