From the
editor’s desk…
Welcome
to Pipes & Wires #139. This issue discusses the following matters…
· The impact of disruptive technologies and how regulatory
frameworks might need to be altered to accommodate the increasing customer
choice that comes with such technologies.
· A couple of regulatory decisions, in New Zealand, Australia
and the US.
· Storage of peak-time electricity.
So …
until February 2014, happy reading and enjoy the Christmas holidays…
Matters for attention in NZ
Readers’
attention is drawn to the following matters…
· Revised standard NZS7901:2014 for Safety Management Systems.
· Increasing interest in ISO 55000 in regard to asset management
practices and systems.
· Increased obligations for worker safety.
· The Electricity Authority’s intention to “improve
distribution efficiency”.
· Increasing interest in ISO 37120:2014 in regard to sustainable community development.
Cool video clip
This
really interesting video clip describes how the increasing scale of electric plants in
the 1890’s and the early 1900’s led to decreasing prices and eventual
consolidation of electric companies in large cities like New York and Chicago.
That consolidation reduced the competition that was keeping downward pressure
on prices, and led to agreements with regulators that prices would be regulated
in return for an exclusive franchise.
Cool magazine article
This
really cool article describing Britain’s electric power supplies appeared in Part 3 of Wonders Of
World Engineering which was published on 16th March 1937. The
article describes the development of the 132kV grid back in the days when the
objective was to keep the lights on at least cost. Themes such as economic
efficiency, incentive regulation, global warming and de-carbonisation don’t
even get a mention (although acid rain gets a vague mention in Solving the smoke problem in Part 32 which was published on 5th October
1937).
New Zealand
NZ – setting the electricity default price path
Introduction
Electricity
distribution businesses (EDB’s) that do not meet the consumer ownership
criteria set out in s54D of the Commerce Act 1986 are subject to a Default Price-Quality Path (DPP) for the
five year period 1st April 2010 to 31st March 2015. The Commerce Commission recently released its Final Determination of the Default Price Path (DPP) that will apply to the 16 non-exempt electricity
distribution businesses (EDB’s) for the 5 year period commencing on 1st
April 2015 (and to Orion when its Customised Price Path expires). This article
examines the key features of the Final Determination and compares it to the
Draft Determination.
Legal framework
The
legal framework for the DPP is as follows…
· Part 4 of the Commerce Act 1986 provides the broad framework for regulated goods or
services.
· Subpart 3 of Part 4 specifies the purpose of the Input Methodologies,
and the processes to be used for compiling the IM’s.
· Subpart 6 of Part 4 specifically addresses the Default and Customised
Price-Quality Regulation, with ss 52O and 52P setting out the specific features that a DPP must include.
· Subpart 9 of Part 4 specifically addresses electricity line services.
· s54D(1) defines the criteria that an EDB must meet to be exempt
from the DPP.
The Commission’s previous work
The
Commission’s previous work has included extensive deliberation on information
forecasts, on quality and performance incentives, treatment of risk, and how
claw back should be applied. Pipes & Wires #127, #129, #132, #135 and #138 discuss these issues.
Key features of the Final Determination
Key
features of the Final Determination include…
· The following starting prices (MAR) and annual rates of
change shall apply…
Company |
Draft
Determination |
Final
Determination |
||
Maximum
Allowable Revenue ($m) |
Annual
rate of change |
Maximum
Allowable Revenue ($m) |
Annual
rate of change |
|
Alpine
Energy |
$30.913 |
10.0% |
$30.458 |
11.0% |
Aurora
Energy |
$56.590 |
0.0% |
$56.512 |
0.0% |
Centralines |
$10.084 |
6.0% |
$9.983 |
7.0% |
Eastland
Networks |
$22.681 |
3.5% |
$22.732 |
3.0% |
Electricity
Ashburton |
$32.846 |
2.0% |
$33.047 |
0.0% |
Electricity
Invercargill |
$14.556 |
0.5% |
$13.565 |
0.0% |
Horizon
Energy |
$22.047 |
0.5% |
$22.027 |
0.0% |
Nelson
Electricity |
$6.093 |
0.0% |
$6.824 |
0.0% |
Network
Tasman |
$28.729 |
0.0% |
$28.092 |
0.0% |
OtagoNet |
$23.742 |
0.0% |
$24.780 |
0.0% |
Powerco |
$256.527 |
0.0% |
$250.424 |
0.0% |
The
Lines Company |
$35.816 |
0.0% |
$34.705 |
0.0% |
Top
Energy |
$35.020 |
7.0% |
$34.231 |
7.0% |
Unison |
$100.102 |
0.0% |
$100.102 |
0.0% |
Vector |
$396.831 |
0.0% |
$395.245 |
0.0% |
Wellington
Electricity |
$100.482 |
0.0% |
$98.788 |
0.0% |
· The following SAIDI targets, collars and caps shall apply
(revenue at risk from the collar & cap approach is 1%)…
Company |
Draft
Determination |
Final
Determination |
||||
SAIDI
collar |
SAIDI
target |
SAIDI
cap |
SAIDI
collar |
SAIDI
target |
SAIDI
cap |
|
Alpine
Energy |
78.77 |
147.60 |
216.44 |
111.4627 |
132.8088 |
154.1549 |
Aurora
Energy |
61.41 |
86.80 |
112.20 |
65.5614 |
74.4633 |
83.3652 |
Centralines |
100.94 |
137.19 |
173.44 |
98.7960 |
119.0718 |
139.3477 |
Eastland
Networks |
206.03 |
246.60 |
287.16 |
210.2241 |
242.1494 |
274.0746 |
Electricity
Ashburton |
109.27 |
139.55 |
169.83 |
114.6501 |
132.8466 |
151.0431 |
Electricity
Invercargill |
17.51 |
29.16 |
40.80 |
17.0250 |
24.0759 |
31.1267 |
Horizon
Energy |
124.54 |
170.64 |
216.73 |
124.4211 |
150.1240 |
175.8269 |
Nelson
Electricity |
5.55 |
15.13 |
24.7 |
10.1810 |
16.2056 |
22.2302 |
Network
Tasman |
102.54 |
126.03 |
149.52 |
95.1376 |
112.4781 |
129.8185 |
OtagoNet |
171.51 |
233.61 |
295.70 |
194.2394 |
224.5773 |
254.9153 |
Powerco |
166.19 |
222.32 |
278.44 |
167.0966 |
188.8628 |
210.6290 |
The
Lines Company |
201.33 |
238.81 |
276.30 |
183.3679 |
208.7747 |
234.1815 |
Top
Energy |
364.24 |
445.99 |
527.75 |
340.0581 |
405.4091 |
470.7602 |
Unison |
87.5 |
111.4 |
135.3 |
88.1075 |
99.1371 |
110.1668 |
Vector |
81.52 |
106.64 |
131.77 |
87.8999 |
96.0364 |
104.1728 |
Wellington
Electricity |
24.92 |
37.12 |
49.31 |
30.2414 |
35.4358 |
40.6302 |
NZ – determining the electricity and gas WACC
Introduction
The
Commerce Commission has been revising the WACC that will apply to electricity
lines and gas pipes businesses following the High Court’s opinion that the 75th
percentile might be too high. This article examines the Commission’s recently
released Electricity Lines Services and Gas Pipeline Services Input Methodologies
Determination Amendment (WACC Percentile For
Price-Quality Regulation) 2014, also known as Decision [2014] NZCC 27. Interested parties
should read the full determination as this article is by necessity brief.
Regulatory framework
The
broad regulatory framework is Subpart 3 of Part 4 of the Commerce Act 1986, in particular…
· s52V(2), which sets out the requirement for the Commission to
publish a draft, provide a reasonable opportunity for comment, possibly hold a
conference, and have regard to submitted views.
· s52X, which requires a material change to be treated as a new
IM.
Applicability of the determination
The
following determinations are amended by NZCC 27…
· Electricity Distribution Services Input Methodologies Determination 2012 ([2012] NZCC 26).
· Transpower Input Methodologies Determination 2012 ([2012] NZCC 17).
· Gas Distribution Services Input Methodologies Determination 2012 ([2012] NZCC 27).
· Gas Transmission Services Input Methodologies Determination 2012 ([2012] NZCC 28).
Key features of the determination
The
two key features of NZCC 27 are…
· Replaces references to “75th percentile” with “67th
percentile”.
· References to “0.674” for calculating the mid-point WACC
estimate are to be amended to “0.440”.
Timeframe for implementing NZCC 27
NZCC
27 will apply from the following dates…
· Electricity distribution DPP – from 1st April
2015.
· Transpower IPP – from 1st April 2015.
· Gas pipelines DPP – from 1st October 2017.
NZ - LED street lighting reducing kWh throughput
Introduction
Many
councils are looking to replace their traditional Sodium vapor street lights with LED lights, with a key driver appearing to be energy
efficiency with the obvious consequences of reduced kWh consumption. This article,
however, picks up on the well-worn theme of how that declining kWh consumption
might impact on electric distribution businesses that recover their high fixed
costs on a kWh basis.
The legal and regulatory angles
A
couple of pieces of NZ’s legal and regulatory framework encourage or indeed
even require certain classes of bodies to “have regard to energy efficiency” in
varying degrees, viz…
· s54Q of the Commerce Act 1986 requires the Commerce Commission to promote incentives for
investment in energy efficiency, which continued the requirement set out in the
now repealed s172N(2)(d) of the Electricity Act 1992.
· s128(3)(c) of the Electricity Industry Act 2010.
· The former Government Policy Statements that required energy
efficiency to be considered.
The effect on electric distribution businesses
Many,
if not most, electric distribution businesses (EDB’s) recover at least part of
their costs on a kWh basis, which involves some legacy assumptions about kWh
consumption per customer connection.
The
transition to LED street lighting is likely to reduce electricity consumption
by about 50% to 60%, which will undoubtedly reduce kWh consumption. Precisely
how that effects EDB’s will depend on how their street light tariff is
structured (noting that some are very sensibly structured as a fixed annual
charge per light), but none-the-less any reduction in kWh throughput is
unwelcome and may well result in higher per-kWh charges to all customers.
That
in turn could lead to subsidies from those who can’t afford the up-front cost
of investing in energy efficiency to those who can.
NZ – preparing for disruptive electrical technologies
Introduction
The
Commerce Commission has signaled that it is open to considering the impact of
disruptive technologies such as rooftop solar when it compiles the regulatory
model that will start on 1st April 2020. This article examines those
technologies and then looks at what issues and features a regulatory model
might need to address.
Possible technologies
Some
of the technologies that are emerging include…
· Solar panels that generate electricity.
· Solar hot water (that displaces incoming electricity).
· Electric cars feeding back into the grid at peak times.
· Gas-fired fuel cells (either bottled natural gas, or
bio-gas).
· Micro wind turbines.
· On-site energy sources that displace incoming electricity
(cogeneration, solid fuels etc).
These
technologies are obviously very broad and in some ways each technology is scientifically
unique, but they all have the common features that they will…
· Increasingly reduce consumed kWh, requiring electric tariffs
to have a greater proportion of fixed charges if the true economic cost of network
connection is to be fully recovered.
· Provide customers with increasing choices of alternative
energy supplies, reducing the need for regulation.
The resulting issues
That
reduction of consumed kWh could have 2 major head-line implications (and as a
starting point I’m going to make the bold assumption that policy and tariff
mechanisms are put in place to restrict electric car re-charging to off-peak
periods)…
· Traditional electricity generators are likely to face
significant changes to their legacy generation profiles, which may include
significant reductions in kWh or possibly generation at different times. This
has the potential to strand marginal generation, but also has the possible
upside of better utilization of base-load and shoulder generation.
· Grid and network companies are likely to see increasingly
bi-directional electricity flows that will start with a reduction in incoming
kWh which may then extend to increasing outgoing kWh. As Pipes & Wires has
reiterated, the costs of the network will stay pretty much constant (or
possibly even increase) but will need to be recovered from fewer kWh. One
option is to increase the per-kWh price, however that will simply encourage
further reductions in kWh consumption.
If we
then relax my initial assumption of restricting car re-charging to off-peak so
that cars can be re-charged any time, the following further issues may emerge…
· Traditional electricity generators may see increased
generation during peak times, leading to increased fossil-fuelled generation in
many jurisdictions.
· Grid and network companies are likely to see increased kW demand
which will almost certainly require a lot of growth CapEx which in turn must be
recovered from customers. As Pipes & Wires has previously noted, under
conventional kWh-based tariffs peaky loads (in which the peak kW tend to be
large compared to the kWh consumed such as air conditioners) tend to draw a
subsidy from customers with non-peaky loads.
Issues that the post 31st March 2020 regulatory
model will need to address
The
regulatory model that takes over when the next DPP expires on 31st
March 2020 will need to address the following issues…
· Rather than being universally applicable to all customer
connections owned by a non-exempt EDB, regulation will need to operate solely as
a back-stop for those customers who genuinely cannot (and not simply don’t or won’t)
adopt alternative energy sources and lapse for those customers who install
alternative energy sources. This might also include relaxing the information
disclosure requirements.
· An ability to include increasingly fixed tariffs to ensure
that the true economic cost of network connection is recovered. Customers’
ability to install alternative energy sources will provide counter-veiling
economic power because if fixed charges increase too much those customers have
the choice of going off-grid.
· Equating feed-in tariffs to consumed energy tariffs (like
Contact Energy and Meridian Energy have recently done). The declining cost of
alternative energy sources means there is no need for subsidies.
· Increased information on customers’ electric bills. Industry
opinion seems divided on this … some are saying nobody will bother to read all
the extra information, others claiming that exported energy and subsidies to
achieve public policy objectives need to be clearly stated, and presumably
others who will want the subsidies disguised or buried.
The current regulatory framework, and how it might need to
be amended
The
current regulatory framework includes the following features that might need to
be amended (and this is certainly not an exhaustive list)…
Ref. |
Requirement |
What
might need amending |
Regulation
of goods or services only if there is … little or no competition. |
Increased
recognition of this requirement, such that blanket regulation of non-exempt
EDB customers does not occur. |
|
Sets
out purpose of the Input Methodologies (IM’s). |
Recognition
that IM’s only apply to customer connections that don’t or can’t install
alternative energy. |
|
Sets
out the purpose of information disclosure. |
Recognition
that disclosure need not include assets that could be subject to competition
(ie. customer connections that have installed alternative energy sources). |
|
Provides
for all EDB’s to disclose information. |
Relaxing
so that only assets or customer connections not able to be supplied by
alternative energy sources are subject to disclosure. |
|
Provides
for all non-exempt EDB’s to be subject to price-quality regulation. |
Relaxing
so that only assets or customer connections not able to be supplied by
alternative energy sources are subject to price-quality regulation. |
|
Declares
electricity line services to be regulation. |
Relaxing
so that only electricity line services that are not subject to completion
from alternative energy sources be subject to regulation. |
|
Subjects
certain electricity line services to default or customised price-quality
regulation. |
Relaxing
so that only electricity line services that are not subject to completion
from alternative energy sources be subject to price-quality regulation. |
|
ss14-17 of the Electricity (Low Fixed Charge
Tariff Option For Domestic Customers) Regulations 2004 |
Sets
out the minimum requirements for EDB tariffs with particular regard to the
fixed component. |
Removal
of the requirement to offer low fixed charges to any primary residence that
has installed alternative energy sources. |
So …
let’s sharpen the pencils and get thinking…
Global
Global - has price regulation of electric wires had its’ day ??
Introduction
Price
regulation of electric wires has been around since the early 1900’s, but the
principles of regulating monopoly infrastructure appear to go back even further
to the beginning of piped coal gas around the 1850’s. This article considers 2 major trends that make it prudent
to consider whether price regulation of electric wires has maybe had its day.
The original reasons for regulation of electric wires
The original
reason for regulating electric wires (electricity distribution services) was an
agreement that apparently involved J.P Morgan that an incumbent electric wires company would be an
exclusive franchise in return for that incumbent being price regulated. Morgan quickly
recognised that competition would be economically inefficient, and agreed to
price regulation of the incumbent by the state authorities in return for an
exclusive supply (distribution) area.
Trends that are diminishing the need for price regulation
A bit
over a century on from the original price regulation we now face 2 significant
issues that are making price regulation less necessary and increasingly harder
to accurately apply…
· Technology is providing alternative energy choices for
customers, particularly rooftop solar supported by batteries (which are making
network connection less and less critical). The increasing choice of
alternative energy sources is shifting the balance of power towards customers,
diminishing the need for regulation (this issue was raised during question time
at the Commerce Commission’s recent conference on the WACC revision).
· These technologies are eroding the legacy per-customer kWh
consumption assumptions that many regulatory regimes are based on, leading to
over-stated kWh forecasts. When actual kWh consumption is less than the regulators
forecast, revenue may be less which can lead to under-funding.
So it
appears that 2 things are occurring … there is less need for regulation, and
regulation is increasingly struggling to accurately forecast future
circumstances.
Global – storing peak-time electricity
Introduction
One of
the first questions people used to ask me about electricity was “can it be stored”
in the context of the daily load cycle. Of course the answer used to be “no …
not as electricity, but as other forms of energy”. This article examines the
trends in battery storage technologies that are rapidly turning that answer
into a “yes”.
How we used to store peak-time electricity
We
used to store peak-time energy as primary energy rather than directly as
electricity … water at the top of a dam, diesel in a tank, gas in a pipeline
etc. This of course often required generation plant that had 2 characteristics…
· It has to be able to start or at least ramp up fairly
quickly, which often requires hydro or gas turbines. Of course the trade-off
with the rapid starting capability of open-cycle gas turbines is that they have
a lower thermal efficiency.
· It usually runs at a low annual load factor. This has
created cost recovery difficulties in markets that pay for MWh rather than kW.
Battery storage technologies
Batteries
have been steadily improving over the years, ostensibly on a couple of
dimensions…
· The volume of electricity that can be stored per unit
weight.
· The time required to re-charge.
· The number of times that the battery can be usefully
re-charged.
· Specific technologies that can be escalated in scale.
Each
of these dimensions has been driven by different applications such as mobile
phones and electric cars.
Likely uses for battery storage
Battery
storage is likely to have 3 main uses…
· Buffering intermittent renewables (wind and solar).
· Releasing stored (off-peak) electricity during peak times.
· Providing an alternative to building additional lines (refer
to Pipes & Wires #86 “US – big batteries for the Lone Star State”).
Those
who have had the pleasure of my 2 day electricity training course will hopefully remember that 1 of the future scenarios
discussed in Chapter 10.2 is the “battery charger” scenario in which
conventional electric grids essentially become a giant battery charger. So … a
very exciting future out there.
UK & Europe
Germany – the district of Feldheim goes self sufficient
Introduction
Going
off-grid is a topical issue, so this article examines the efforts by the district
of Feldheim near Berlin to go completely energy self-sufficient.
A bit about Feldheim
Feldheim
is a district of the city of Treuenbrietzen, about 60km south-west of Berlin. It has about 130
residents living in about 40 houses, and covers about 6.3km2 … so it
is pretty small. In electrical terms that’s about 1 GWh of electricity per year
(noting that they did have oil heating).
The technologies adopted
Some
of the technologies that supply Feldheim include…
· Wind, from 43 turbines owned by Energiequelle Gmbh. These have an installed capacity of about 81MW, and
generate about 160 GWh per year so not surprisingly over 99% of the generated
electricity is exported.
· Thermal generation fuelled by gas from pig manure and cow
manure generating about 4 GWh per year.
· Thermal generation burning forestry (timber) waste.
· Solar panels generating about 2.7 GWh per year.
· A second planned stage including a battery bank to smooth
the fluctuations in wind generation.
What might the issues and concerns be ??
Let’s
identify the issues and concerns using the “Energy Trilemma Model”…
· Security of supply - given the presumably secure supply of
manure and timber waste to fuel the generators, security of electricity supply
shouldn’t be much of a problem.
· Price – apparently the locals are paying about 30% less for
their electricity than they used to. However there are 2 issues buried slightly
below the surface that need examining …
So maybe those subsidies are why the locals get cheap
electricity (and heat).
· Emissions – presumably the emissions are pretty close to
zero. However we need to factor in the emissions from any quick-start gas
turbine plants used to buffer wind and solar variations, remembering that if
renewable generation didn’t have priority access to the grid secure,
non-emitting generation such as nuclear could be used.
The wider picture
So it
appears that Feldheim has not gone “off grid” as many claim, but is in fact
very much “on grid” and receiving various subsidies (so maybe they’re the
clever ones !!).
North America
US – reforming tariffs to recover costs from low-use
consumers
Introduction
Recovery
of the full economic cost of operating a network in the face of declining kWh
consumption continues to be a challenge … I’d go as far as saying that
correctly managing this regulatory disconnect is probably 1 of the 3 or 4 big
issues facing electric distribution companies (EDC’s) globally. This article
examines San Diego Gas & Electric’s (SDG&E) proposed tariff reform which opponents claim
will include a $10 per month fixed charge.
The key issues around tariff reform
The
key issues are…
· The cost of operating a network is pretty much fixed,
regardless of kWh consumption. In economic-speak, we would say it has a high
ratio of fixed to variable costs.
· Many jurisdictions either prefer or require (by regulation)
that those fixed costs be recovered on a kWh basis rather than paying a fixed
daily charge (which would be more economically efficient). Hence an annual kWh
consumption was assumed (about 8,000kWh per domestic customer in New Zealand),
from which a c/kWh tariff was derived.
· Any reduction in kWh consumption (including as a result of
roof-top solar) leads to under-recovery of the high fixed costs.
In
addition to these key issues there are a range of legacy tariff issues stemming
from the enacting of California Assembly Bill 1X in February 2001 which inter alia created 4 tiers of tariffs,
capped tariffs for the 2 lowest tiers and left the 2 highest tiers paying about
50% more than the true cost of supply.
SDG&E’s proposed tariff reform
Key
features of SDG&E’s reformed tariff proposal includes…
· A strong emphasis that customer choice must be complemented
with a transparent unbundling of all tariff components.
· Tariffs should more accurately signal underlying costs.
· Tariffs must not allow unreasonable shifting of costs to
other classes of customers.
· A recognition that a smooth transition from legacy tariffs
is required.
· An emphasis that full cost recovery is necessary to maintain
a safe, reliable electric supply.
· Recognition that incentives or subsidies required to achieve
public policy goals must be separately identified on the bill, so that
customers can see how much those subsidies cost.
· The principles of fairness and equity.
The opponents’ response
One of
SDG&E’s opponents is The Utility Reform Network (TURN). TURN’s objections
include…
· The proposed $10 per month fixed charge, which it argues
discourages energy conservation and disadvantages low-income customers.
· Any introduction of time-of-use (TOU) metering which could
increase electric bills in hot locations (because air conditioner use tends to
coincide with grid congestion).
Another
opponent, the Alliance For Solar Choice, points out that the value proposition
for roof-top solar declines as fixed charges are introduced (which it
undeniably does, but if that is the case then the value proposition must rely
on an implicit subsidy).
The editor comments
The
real question underlying these issues is whether people believe that low users should
have their cost of distribution network connection subsidised by other classes
of customers. If someone does believe that (as it appears that TURN and AFSC
do) a sensible way forward will never be achieved, and it will rely on
regulators taking a balanced view of how the long-term objectives of reliable
electricity supply will be achieved.
US – reducing the ROE on electric transmission assets
Introduction
We’re
all familiar with the inventive that a correct ROE provides to asset investors,
and how an ROE that is too low can discourage investment and threaten long-term
supply reliability. This article examines a recent Federal
Energy Regulatory Commission (FERC) ruling that will reduce the ROE on electric
transmission assets in the New England states from 11.14% to 10.57%.
Regulatory framework
The
regulatory framework includes inter alia
s206 of the Federal Power Act which authorises the FERC to investigate and if necessary
determine a “just and reasonable rate” for electric transmission if a complaint
is received.
The FERC’s decision
Based
on a complaint back in 2011 that electric transmission tariffs were too high,
the FERC investigated and in mid-October 2014 released its Opinion No. 531-A. Key features of that decision include…
· Adoption of a 2 step discounted cash flow methodology (in
its previous Opinion 531).
· Concluding that gross domestic product (GDP) is an
appropriate long-term growth rate to use.
· Concluding that the existing 11.14% base ROE is unjust and
unreasonable, and that a just and reasonable base rate is 10.57%.
· A requirement to refund customers with interest.
Key issues
Any
ROE or WACC decision has the potential to change investment patterns, with a
reduction in allowable ROE leading to the following possible outcomes…
· A reduction in renewal investment levels, leading to a
long-term decline in asset condition and hence supply reliability.
· A migration of capital to other activities. Pipes &
Wires #98 noted that 1 of the underlying drivers of the flurry of mergers was
migration of capital from individual state jurisdictions to the FERC
jurisdiction which typically allowed a higher ROE.
So,
like all things, time will tell what investment incentives Opinion 531-A will
prompt.
Australia
SA – the 2015-2020 revenue determination
Introduction
SA
Power Networks recently submitted its Regulatory Proposal (rate case) to the Australian Energy Regulator for the 5
year regulatory period beginning on 1st July 2015. This article
summarises the key features of the Proposal to set some context for analyzing
the Draft and Final Determinations.
The regulatory framework
The
regulatory framework has its basis in s7 of the National Electricity Law, which states the National Electricity Objective which is inter alia to promote efficient
investment in electricity services for the long-term benefit of consumers. Chapter 6 of the National Electricity Rules sets out the details for economic regulation of
distribution services.
Key features of the process to date
Key
features of the process to date include…
Parameter |
Initial
Proposal ($
nominal) |
Draft
Determination |
Revised
Proposal |
Final
Determination |
Total
OpEx |
$1,554m |
|
|
|
Total
CapEx |
$2,485m |
|
|
|
Opening
RAB |
$3,829m |
|
|
|
Regulatory
depreciation |
$936m |
|
|
|
Unsmoothed
revenue |
$4,782m |
|
|
|
P0 |
4.3% |
|
|
|
X |
0% |
|
|
|
Pipes
& Wires will comment further when the AER releases its Draft Determination.
Queensland – the 2015-2020 revenue determinations
Introduction
Energex and Ergon Energy recently submitted their Regulatory Proposals (rate cases)
to the Australian Energy Regulator for the 5 year regulatory period beginning
on 1st July 2015. This article summarises the key features of those
Proposals to set some context for analyzing the Draft and Final Determinations.
The regulatory framework
The
regulatory framework has its basis in s7 of the National Electricity Law, which states the National Electricity Objective which is inter alia to promote efficient
investment in electricity services for the long-term benefit of consumers. Chapter 6 of the National Electricity Rules sets out the details for economic regulation of
distribution services.
Key features of the process to date (Energex)
Key
features of the process to date include…
Parameter |
Initial
Proposal ($
nominal) |
Draft
Determination |
Revised
Proposal |
Final
Determination |
Total
OpEx |
$1,738m |
|
|
|
Total
CapEx |
$3,240m |
|
|
|
Opening
RAB |
$11,313m |
|
|
|
Regulatory
depreciation |
$502m |
|
|
|
Smoothed
DUOS revenue |
$9,832m |
|
|
|
P0 |
0% |
|
|
|
X |
2% |
|
|
|
Key features of the process to date (Ergon)
Key
features of the process to date include…
Parameter |
Initial
Proposal |
Draft
Determination |
Revised
Proposal |
Final
Determination |
Total
OpEx (nominal) |
$2,035m |
|
|
|
Total
CapEx (real) |
$3,555m |
|
|
|
Opening
RAB |
$10,041m |
|
|
|
Regulatory
depreciation |
$904m |
|
|
|
Unsmoothed
revenue |
$8,229m |
|
|
|
P0 |
15.85% |
|
|
|
X |
Varies |
|
|
|
Pipes
& Wires will comment further when the AER releases its Draft Determination.
Recent client projects
Here’s
a sample of work done for clients over the last few years that demonstrate the
breadth of skills, insight and experience that is available from Utility
Consultants....
· Advising a major global investment bank on the revenue and
capital cost characteristics of the New Zealand generation industry.
· Assessing the investment characteristics of proposed CapEx
increases to an investor-owned electric network.
· Assessing three EDB’s asset management practices against ISO
55000:2014.
· Assessing an EDB’s compliance with the lines – generation
separation requirements of the Electricity Industry Act 2010.
· Assessing an EDB’s compliance with the Electricity Industry
Participation Code.
· Compiling safe operating procedures for a wide range of
distribution switches.
· Advising an investor on the investment characteristics and
regulatory constraints of small hydro development and grid connection.
· Reviewing the engineering aspects of an EDB’s lines pricing
methodology.
· Advising a major global consultancy on specific features of
emerging electricity transmission and distribution regulatory regimes,
including period length, potential for re-opening determinations, caps &
collars, total expenditure levels and incentive mechanisms.
· Examining the economic efficiencies of an EDB’s pricing
methodologies.
· Advised on the wider philosophical and potential tax issues
of the way consumer discounts are paid by EDB’s.
· Prepared an independent engineer’s report to justify
proposed alternative asset lives.
· Advised an electricity business on the regulatory
implications of bringing externally contracted field services back in-house.
· Identified economic and regulatory arguments to support
inclusion of transmission interconnection charge risk into network tariffs.
· Advised lines businesses on a regulator’s proposed treatment
of CapEx and OpEx.
· Advised an international investor on gas distribution policy
and regulatory trends.
· Identified national energy policy implications for lines
businesses.
· Assisted a lines business to identify the burden of proof
implied by regulatory determinations.
· Suggested amendments to a gas transmission AMP to strengthen
the economic arguments.
· Identified electricity network investment characteristics as
part of an acquisition study.
· Developed an AM framework for a gas distribution business to
link AM to regulatory requirements.
· Identified OpEx – CapEx tradeoffs for an electricity lines business.
· Performed various substation growth and reinforcement
assessments.
· Performed network physical and business risk studies.
· Compiled disaster recovery and business continuity plans.
Pick here to download a profile of recent projects, or here to contact Phil.
General stuff
Guide to NZ electricity laws
I’ve
compiled a “wall chart” setting out the relationship between various past and
present electricity Acts, Regulations, Codes etc in
sort of a chronological progression. To request your free copy, pick here. It looks really cool printed in color as an A2 or A1 size.
A bit of light-hearted humor
What
if price control had been around in the 1920’s and 1930’s ?
A collection of photo’s with humorous captions looks at some of the salient
features of price control. Pick here to download.
Conferences & training courses
The following
conferences and training courses are planned...
· Fundamentals of the NZ electricity industry, Wellington, 16th – 17th March 2015.
· Fundamentals of the NZ electricity industry, Auckland, 20th – 21st April 2015.
Utility
Consultants takes no responsibility for the content of individual courses or
conferences, nor for any administrative or travel arrangements.
Wanted – old electricity history books
If
anyone has an old copy of the following books (or any similar books) they no
longer want I’d be happy to give them a good home…
· Distribution Of Electricity (WT Henley, the cable
manufacturer)
· Northwards March The
Pylons.
· Two Per Mile.
· Live Lines (the old ESAA journal).
· The Engineering History Of Electric
Supply In New Zealand.
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Disclaimer
These articles are
of a general nature and are not intended as specific legal, consulting or
investment advice, and are correct at the time of writing. In particular Pipes
& Wires may make forward looking or speculative statements, projections or
estimates of such matters as industry structural changes, merger outcomes or
regulatory determinations. These articles also summarise lengthy documents, and it is important that readers refer to those
documents in forming opinions or taking action.
Utility
Consultants Ltd accepts no liability for action or inaction based on the
contents of Pipes & Wires including any loss, damage or exposure to
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