Winery Engineers Association

1. How Strong is Strong Enough?Design intent, potential outcomes, risk, targeted performance criteria Winery Engineers Association Mike Finlayson, Regional General Manager Napier, September 2014

2. Theme “The winemaking industry would benefit from improved communication between owners and structural designers on design intent, the potential outcomes and the associated risk that is accepted with respect to targeted performance criteria” A number of winery operations have been… Reducing the strength of a tank to save on fabrication costs, but in doing so, they’re accepting that the financial risks associated with an earthquake event are increased

3. Contents • Introduction • What happened 16 August? • Part 1: What are your legal obligations as an owner? • The Building Act • The HS&E Act • The Local Authority • Your insurer • Earthquake Prone Buildings • Part 2: Risk and Targeted Performance Criteria • Part 3: A “simplistic” scenario to illustrate • Conclusions • Recommendations

4. What happened on 16th August • At Riverlands we estimate a horizontal load of 0.2g was experienced. • Little or no building damage • Quite a lot of tank damage (non ductile tanks) • Some walkway damage • Some tanks “fell over” • Not a lot of wine loss considering the amount of damage

5. What happened on 16th August • Why so much damage to tanks, but very little to buildings?

6. Context Notes: PGA or Peak Ground Acceleration (h)….is the amount of (horizontal or sideways) acceleration at a location as a percentage of gravity’s acceleration (9.81 m/s2). PGA is a good indicator but …damage incurred is a complex relationship between horizontal and vertical PGA, shaking frequency, soil conditions, natural frequency of the structure, length of the event, number of subsequent events etc.

7. Part 1: Legal Obligations as an Owner • How strong does a tank need to be to satisfy your obligations to: • The Building Act • The HS&E Act • The Local Authority • Your insurer • Business sustainability • This affects you when you… • Buy a tank • Install a walkway • Repair or strengthen a tank • Insure a tank and its contents

8. Employer Obligations: Health and Safety Act …shall take all practicable steps to ensure safety of employees at work…

9. Owners Obligations - Building Act 2004 …ensure that building work…. complies…with the building code… • Are tanks covered by the Building Code? • What about earthquake prone facilities?

10. Interlude: “Managing Earthquake-prone buildings” The Building Act 2004 • requires new buildings to meet the performance requirements in the Building Code • provides a threshold to define whether an existing building is earthquake-prone • Requires Territorial Authorities to develop policies The Act defines an ‘earthquake-prone’ building as • one that will have its ultimate capacity exceeded in a ‘moderate earthquake’ and that would be likely to collapse causing: injury or death to persons or damage to any other property. In practice, the definition of an earthquake-prone building has become • condensed over time to the shorthand of 33% or less of the New Building Standard (NBS).

11. We asked the councils… • We didn’t get a clear answer • There was some discussion about tanks being exempt • Councils typically have not been requiring owners to apply for building consents for wine tanks – but have for the foundation slabs. • Walkways • Need a building consent and should be designed to the same seismic levels as buildings. • Tanks that are holding up walkways should also be classed as a primary structure and must have the equivalent strength to walkways and buildings, but… • Does not appear that councils have been treating them this way

12. We asked some insurers… • We didn’t get a clear answer. • Insurance will only cover the repair, not strengthening. • They were unable to specify a minimum standard or strength required to satisfy their needs. • Owning tanks (or storing wine in tanks) that are now known not to meet “industry standards” or “building code” would need to be discussed with the insurer • an increased premium may be required, • or they may choose not to cover. • There’s an obligation to inform the insurer of this.

13. Summary of Obligations • You must keep your employees safe from harm during earthquakes • Tank top walkways must stay operational • Tanks shouldn’t be collapsing into workspaces (damage and wine loss is OK) • Access ways must remain open • New facilities have to be right from the outset, • Existing earthquake prone facilities will need to be remediated to an agreed programme/timeframe • Just because the council has an exemption for a building permit, doesn’t mean you don’t have to comply with the intent of the building code • How much damage is sustained during a given earthquake is an issue between the owner, their bank and insurer

14. Earthquake Risk “…the potential outcomes and the associated risk that is accepted with respect to targeted performance criteria” Map showing peak ground acceleration expected with a 10% probability of exceedance in 50 years on Class C (stiff soil) sites

15. Earthquake Risk : Buildings • Rules: • The “Ultimate Limit State Event” is for a normal building a 1 in 500 year return period event. • Occupants of the building must be safe during the event and be able to safely evacuate afterwards. • The “Serviceability Limit State Event” is a 1 in 25 year period return event. • Buildings must be undamaged for this event. • Calculating the Earthquake loads…in say Riverlands or Hastings (simple structures): • 0.85g for buildings, walkways and tanks supporting walkways • 0.28g for building serviceability

16. Earthquake Risk : Targeted Performance Criteria “…the potential outcomes and the associated risk that is accepted with respect to targeted performance criteria” Targeted Performance Criteria • Allowing an increased risk of failure during the life of the tank, as the consequence of a failure is lower than normal. • NZSEE “Seismic Design of Storage Tanks” (2009) allows for this… • “Importance Level 1”is for… “isolated commercial tanks containing non-toxic liquids without an overhead walkway” which have a… “negligible or slight consequence of failure”… • “Importance Level 1” tanks are designed to resist a 1 in 100 year return period event. (unlike a building at 1 in 500 year return) • This designation essentially halves the earthquake load needing to be resisted • Some designers are also assuming a 25 year design life, allowing a further reduction in design load • Our advice is it isn’t appropriate to downgrade design strength on the basis it is a low occupancy or low risk – because tank farms are neither.

17. A simplistic scenario* • 1,000T winery in Blenheim (assume 150 tanks) • Total value of the capital assets = $5M (@ $5k/tonne) • Of which, say, $2M are buildings • Tank Cellar Fitout… • Could save about $500k by being “economic”???

18. A simplistic scenario* • 1,000T winery in Blenheim (assume 150 tanks) • Total value of the capital assets = $5M (@ $5k/tonne) • Value of Wine (750kl) = $3.75M (@ $5/litre) • Some other bits and pieces… • Total insured value = $10M • Insurance portfolio • Total insured value = $10M • Deductible = $500k (5% of insured value) – per event • Annual premium $35k (0.35%)

19. A simplistic scenario* Thinking about it… • Building codes are based on 10% change of exceedance in 50 years on a 500 year return event • On average…exposure in a given year = 0.2%, deductible reduces exposure, unlikely everything is damaged • Hence the 0.35% premium makes sense (weather and fire also)

20. A simplistic scenario* So, Blenheim happens… In Riverlands about 1 in 25 year event • A “sturdy” winery • Incurred $150k damage (bolts, dents) • Lower than the $500k deductible. No insurance payout • The “economic” winery • Incurred $1.5M damage (tanks, bolts, wine, walkways) • Insurance pays $1.0M ($500k deductible) • The $500k saved when building, is paid out years later following an earthquake

21. A simplistic scenario* • Thinking about it… • At best the “economic winery is designed for a 100 year return* (instead of 500) • Simplistically, it’s at least 5 times more likely that a catastrophic event will occur… • Yet currently, there’s no difference in insurance premiums or cover • Some wineries were in trouble at a 25 year return event • So what might the insurance industry do? • Status Quo: No change to typical insurance • Premiums will raise significantly, depending on “sturdiness” • Insurance payouts will be capped, deductibles increased • Some wineries will be uninsurable

22. Conclusions… • You have a duty of care under HSE and Building Legislation to protect your staff during earthquakes • New Facilities / Extensions – Have to do it properly from the outset • Existing Earthquake-prone facilities – Need an agreed programme to remediate • Directors are liable under the new legislation – earthquake prone facilities • If you have “reduced strength tanks” you carry a significantly increased financial exposure for “medium” sized earthquake events • If you have “reduced strength tanks” you are likely to have a long term insurance issue • Insurance premiums could become prohibitive • You may not be able to get earthquake insurance

23. Recommendations … As an Industry… (through NZWA??) • Get some advice as to how wineries should approach earthquake prone facilities, agree a practicable timeframe for remediation • Engage with insurance industry and agree: • Minimum strength standards • Acceptable levels of Risk • Deductibles and premiums commensurate of risk • Timeframes to remediate “prone” facilities • Commission a “Wine Tank Design and Manufacturing Guideline”. • Specify design requirement for new tanks • Be the basis of a certification system for new tank supply , existing tanks, planned modifications and insurance

24. Recommendations … To owners… • Understand what you are buying, and the risk that comes with it • Understand what you’ve got • Determine how robust your tanks and walkways are relative to 100% NBS * - engage a competent chartered professional engineer • It doesn’t have to be 100% • If aspects are less than 100% NBS*… • Discuss with your insurer • Is it “earthquake-prone”? Have you told your owner’s or directors? • Make informed decisions on how to improve your position • Fix the “low hanging fruit” * NBS = New Building Standard

25. In summary … • “The winemaking industry would benefit from improved communication between owners and structural designers on design intent, the potential outcomes and the associated risk that is accepted with respect to targeted performance criteria” • As designers, we have communicated with (part of) the wine industry and you all now understand that when you have or procure lower strength tanks you must consider the increased financial risks to your business. Furthermore, if you have earthquake-prone facilities you have obligations under HSE legislations to remediate.

27. DISCLAIMER This presentation has been prepared by a representative of WorleyParsons for the Winery Engineers Association conference, Napier September 2014. The presentation contains the professional and personal opinions of the presenter, which are given in good faith. As such, opinions presented herein may not always necessarily reflect the position of WorleyParsons as a whole, its officers or executive. Any forward-looking statements included in this presentation will involve subjective judgment and analysis and are subject to uncertainties, risks and contingencies—many of which are outside the control of, and may be unknown to, WorleyParsons. WorleyParsons and all associated entities and representatives make no representation or warranty as to the accuracy, reliability or completeness of information in this document and do not take responsibility for updating any information or correcting any error or omission that may become apparent after this document has been issued. To the extent permitted by law, WorleyParsons and its officers, employees, related bodies and agents disclaim all liability—direct, indirect or consequential (and whether or not arising out of the negligence, default or lack of care of WorleyParsons and/or any of its agents)—for any loss or damage suffered by a recipient or other persons arising out of, or in connection with, any use or reliance on this presentation or information.