Risk & Opportunity
The world around us is continually throwing curveballs, offering us new challenges and opportunities.
To remain successful, we must continually adapt to manage our risks and take advantage of our opportunities.
- Improved governance and reporting across key risk areas of cybersecurity and privacy.
- Improved training across cybersecurity, privacy and quality management.
Improved business continuity planning and resilience – establishing adaptable incident-response plans and working groups.
The culture, leadership and technology already established within our business provided a robust foundation to respond to the Covid-19 situation, meaning we continued to provide our customers with essential services.
Our Authorities, Responsibilities and Accountabilities diagram (see Figure 2) depicts how our risk is governed and the delegated authority that occurs. At the highest level, our Board has governance responsibility for Trustpower’s risk.
Risk Management Framework
We have developed a comprehensive, Enterprise-wide Risk Management (ERM) framework, used to actively identify, assess and monitor new and existing risks including climate-related risks. Our Leadership Team regularly report to the Audit and Risk Committee and the Board on Trustpower’s risk and our treatment of those risks. See Figure 3.
The ERM framework encourages risk-based decision making and is supported by a Risk and Assurance Policy and Guidelines document, all working to ensure risks are considered and acted upon accordingly.
Our ERM framework is aligned with ISO 31000:2018. Climate change risk is captured within this system and also in our Asset Management Strategy and Policy for our generation operations. It is currently being addressed in our asset management plans, which in turn ensures it is identified and managed through routine asset management activity.
Risk management is embedded into all business activities and risks are analysed based on Financial, Reputation, Business Disruption Consequences and the Likelihood of Consequence.
The following information highlights areas of significant effort for FY21 in addressing risk.
Safety & Wellbeing
Our people’s health and safety is always a top priority.
In FY21, we focused on reviewing our systems and processes to identify health, safety and wellbeing improvements for our contractors and third parties. We will build on this work continually reducing risk and improving our health, safety and wellbeing culture as an organisation.
Our dedicated Safety and Wellness team oversees Trustpower’s safety policies and works with teams and individuals to meet regulatory and industry standards and address concerns regarding safety.
Within our key internal stakeholder group for safety (largely our generation division), there is an emphasis on health and safety reporting and celebration of health and safety implementation. This is documented in a monthly bulletin and in team reporting. These contributions build into a safety culture and help supplement planning and risk assessment work undertaken.
Our Wellness Committee is made up of volunteers from across the business, who come together to orchestrate events around mental health, physical activity and counselling/support services.
Each year we aim for zero major health and safety incidents and we continue to hold this as our goal.
Snapshot Safety Metrics FY21
Total Recordable Injury Frequency Rate - 0.60
Loss of Time Injuries - 0
Covid-19 has caused obvious disruption to day-to-day life for our customers, our suppliers and ourselves. Our technology stood up to the test during a rapid transition to work from home and increase in domestic demand for energy. Our business continuity planning proved robust during lockdown periods and continues to serve us well through the pandemic. We have upgraded some of our systems (e.g. our telephony platform), processes and guidelines where required, and for most of our office-based staff, having the flexibility to work from home has become an extension to the way that we work. Consequently, the disruption caused to the business as we move between alert levels is now minimal. We will continue to monitor and adapt to the pandemic situation and the impact it may have on our customers, our suppliers and our people.
Compliance & Regulation
Trustpower operates in a heavily regulated industry. Our compliance activities in energy generation, trading and retail include participation in an extensive annual audit regime undertaken by the Electricity Authority, as well as periodic audits by the Gas Industry Company Limited. Additionally, Trustpower participates in the New Zealand Telecommunications Forum’s (TCF) annual self-certification compliance programme.
Changes to regulations have the potential to restrict our licence to operate and to impact us financially, while other regulatory changes may present an opportunity.
A regulatory risk of particular note relates to the proposed transmission pricing reforms. These reforms will have implications for the connection of new generation projects and will change the relative operating costs and competitiveness of generation plants in different locations. Trustpower has sought a judicial review of the Electricity Authority’s decision to replace the transmission pricing methodology guidelines.
We advocate for sound regulatory mechanisms that provide for investment certainty as we strive to support New Zealand attaining its climate change aspirations. This includes submitting on the Climate Change Commission’s 2021 Draft Advice for Consultation and we intend to do the same with respect to resource management reform. Refer to the feature story Legislative Reform for information on Freshwater and Resource Management reforms.
Consequently, we have a dedicated team of specialists who identify the potential impact of regulatory changes, involve themselves in sector and government consultations and provide decision-making insight for our strategy and risk response.
Like many other businesses, cybersecurity is also one of our top risks, and an area where we must constantly adapt to protect ourselves, our customers and our stakeholders. Over the last two years we have made significant improvements in this space, particularly in terms of cybersecurity governance; supply chain management; training, awareness and education for our people; monitoring and reporting; and network access management.
In accordance with the Government Communications Security Bureau (GCSB) recommendations (2019) for establishing resilient cybersecurity governance, some of the improvements we have adopted include:
- establishing a Cybersecurity Governance Group, to provide oversight of cybersecurity within the Senior Leadership Team,
- creating a cybersecurity policy that documents our cybersecurity framework and clear roles and responsibilities,
- implementing monthly reporting to the Board on the state of our cybersecurity.
We remain vigilant and are constantly working to combat new cyber-space developments across our networks and systems, including:
- Operational Technology Network and Systems
- Internet Service Provider Network
- Our Corporate IT Network and Systems
Climate Change Risks, Opportunities, and Management Response
Changing weather patterns due to climate change could have an impact on revenue gained from hydro generation and could increase the risk of damage to our assets.
More frequent and intense droughts could mean lower inflows feeding New Zealand’s key hydroelectric power schemes, potentially increasing energy pricing and forcing the use of alternative energy production, such as using diesel, to meet the energy demands of the country.
Heavy weather events and storms are likely to increase, posing a risk to our assets through flooding, high winds and heat waves (impacting cooling systems), but also offering some welcome inflow storage to some hydro lakes.
Short and long-term climate change risks have been considered through our ERM framework, and as a result we have recently incorporated climate assessment and new hydrology measures to help predict and understand climate change effects at our schemes.
Key physical risks to our assets from climate change are further discussed in Our Environment.
Electricity Retail Market
As we transition to a low carbon future, we are likely to see more competition come into the market. For example, solar providers could become grid electricity retailers, as has occurred in some overseas markets. Similarly, as households buy their first electric vehicle, they are likely to consider their electricity purchasing. These types of household purchasing behaviour changes present both a threat from new competition, and an opportunity to provide new compelling offers.
Electricity Wholesale Market
It is projected that the drive towards a low carbon future will increase New Zealand’s reliance on intermittent power generation (primarily wind in the short to medium term) and a decrease in controlled thermal generation. Trustpower anticipates that this may increase the volatility of wholesale prices, increasing the value of storage and controllable generation. Trustpower maintains a balance between uncontrolled generation (run-of-the-river), and controlled hydro with storage, and we look to enhance our overall market exposure with a range of risk management products.
We have a proven track record of delivering new products in a tight market and will continue to do so. Increased electricity demand due to the electrification of transport and industrial heat means there will be opportunity for increased revenue. Trustpower is closely monitoring the growth in the uptake of electric vehicles and is exploring options on how we can best support this. We are actively looking to grow our renewable generation portfolio to support the transition from other forms of energy to electricity.
Climate change action has driven significant research and development investment into renewable electricity sources and associated technologies. This has led to a rapid decline in the cost of decentralised electricity generation (primarily solar) and batteries.
Trustpower will continue to monitor new technology developments that aid the transition to a low carbon future and best position the business to be able to either participate or adapt. We are creating strong partnerships with stakeholders through this research and intend to develop commercial opportunities as the technology develops in this space.
Policy and legal
Changes to the existing regulatory settings have the potential to significantly impact Trustpower’s business. For example, the Climate Change Commission’s 2021 Draft Advice for Consultation provides a positive framework for Trustpower to grow renewables to support a low-emissions future.
We continually work with industry and sector groups to help Government understand the risks arising from their policy on energy security, affordability, and sustainability. If appropriate balance is not achieved negative impacts may be felt by customers, the industry, and/or New Zealand depending on the nature and magnitude of the specific reforms.