How Strong is Strong Enough?Design intent, potential outcomes, risk, targeted performance criteria

Winery Engineers Association

Mike Finlayson, Regional General Manager

Napier, September 2014

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

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

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

What happened on 16th August

• Why so much damage to tanks, but very little to buildings?

Context

Event Date Example Location Peak Ground Acceleration (h)

Grasmere Aug ’13 Riverlands ≈ 0.2g

Christchurch Feb ’11 Christchurch CBD ≈ 0.37-0.50g

Gisborne Dec ’07 Gisborne CBD ≈ 0.28g

Edgecumbe Mar ‘87 Edgecumbe Dairy ≈ 0.29g

Hawke’s Bay Feb ’31 Napier 0.48-.82g

Notes:

1. 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).

2. 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.

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

…shall take all practicable steps to

ensure safety of employees at work…

Employer Obligations: Health and Safety Act

Owners Obligations - Building Act 2004

• Are tanks covered by the Building Code?• What about earthquake prone facilities?

…ensure that building work…. complies…with

the building code…

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).

Interlude: “Managing Earthquake-prone buildings”

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

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.

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

Earthquake Risk

Map showing peak ground acceleration expected with a 10%

probability of exceedance in 50 years on Class C (stiff soil) sites

“…the potential outcomes and the associated risk that is accepted with respect to targeted performance criteria”

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

Earthquake Risk : 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.

“…the potential outcomes and the associated risk that is accepted with respect to targeted performance criteria”

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”???

“Sturdy” or “best practise”

“Economic”

Tanks $750k (@$1/litre) $560k (@$0.75/litre)

Walkways $600k $400k

Racks $750k $650k

TOTAL $2,100k $1,610k

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%)

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)

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

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?

1. Status Quo: No change to typical insurance

2. Premiums will raise significantly, depending on “sturdiness”

3. Insurance payouts will be capped, deductibles increased

4. Some wineries will be uninsurable

Conclusions…

1. 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

2. If you have “reduced strength tanks” you carry a significantly increased financial exposure for “medium” sized earthquake events

3. 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

Recommendations …

As an Industry… (through NZWA??)

1. Get some advice as to how wineries should approach earthquake prone facilities, agree a practicable timeframe for remediation

2. Engage with insurance industry and agree: Minimum strength standards Acceptable levels of Risk Deductibles and premiums commensurate of risk Timeframes to remediate “prone” facilities

3. 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

Recommendations …

To owners…

1. Understand what you are buying, and the risk that comes with it

2. 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%

3. 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

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.

DISCLAIMERThis presentation has been prepared by a representative of WorleyParsons for the Winery Engineers Association conference, Napier September 2014.

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