From the
editor’s desk…
Welcome
to Pipes & Wires #140. This issue covers the following matters…
· The future of electric networks in the face of increasing
rooftop solar.
· A whole range of regulatory decisions and policy changes in
New Zealand and Australia.
· Shifts in global energy investment strategy.
· A water & sewage regulatory decision in England.
· The divergent approaches to accommodating rooftop solar in
various US states.
· Formation of a national transmission grid in Japan.
Matters for attention in NZ
Readers’
attention is drawn to the following matters…
· Changes to the requirements for connected embedded
generation to distribution networks (refer to article below).
· Increasing interest in ISO 55000:2014 in regard to asset
management practices and systems.
· Revised standard NZS 7901:2014 for Safety Management
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.
Global
Global - the future of electricity distribution
Introduction
The
trends toward micro-generation at individual houses seems to be accelerating.
This article examines some of the issues and overviews a possible framework
within which electricity distribution businesses (EDB’s) might manage these issues.
The increasing role of the prosumer
History
records that before the current industrial age almost everybody was a prosumer
(a word apparently developed by Alvin Toffler around 1980)… they grew their own food, made their own
clothes, raised a few animals and often built their own houses at a micro
scale. A key feature of the prosumer society was the lack of any need for large
scale distribution channels. Two further interesting dimensions to this were…
· The absence of any obvious division of labor in the prosumer
society, in which people had to be averagely good at a whole range of tasks
rather than being able to get really good at any one task.
· The development firstly of canals and then of railways,
which provided cheap distribution channels that made mass production cheaper and
easier than prosumption, and provided a wider range of goods (particularly
fresh food).
The role of technology in shaping the electricity industry
Electricity
started off in a prosumer form in which users of electricity generated the
electricity in their own basements around about 1879. Beginning with Edison’s Pearl St station in 1882, advancing technology in the remainder of the 1880’s
and then into the 1890’s led to larger centralised generation plants of
increasing scale, which of course required distribution and ultimately
transmission which have since become engineering disciplines in their own right.
Advances
in disruptive technologies are now looping back to the start of the technology
cycle in which small scale technologies can be localised, which of course
reduces the need for a distribution channel.
Some specific technologies and applications
The
intermittent nature of wind and solar seemed to be the sticky point, however as
Pipes & Wires #139 noted in the article about the village of Feldheim going
energy self-sufficient there is also the burning of timber waste and manure
which is obviously more secure.
The
real breakthrough appears to be “solar plus batteries”, and it is that ability
to buffer the intermittent nature of solar (and indeed small wind) that makes
going off-grid realistic. On the issue of using electric cars to feed back into
the grid, the current picture is that at least some of the demographics most
likely to own an electric car will probably also be using it as a car during
peak grid periods.
The changing role of distribution and transmission
So
what might the role of distribution and transmission be in an increasingly
prosumer electricity sector ?? I think we are catching
a glimpse of this already as rooftop solar starts to nibble away the nett kWh
conveyance that networks rely on to recover their costs (this on the back already
reduced kWh from energy efficiency and a generally soft economy).
The
first step in the changing role of networks will be a migration from bulk
energy supply to “renewable buffering”, with a foreseeable second step being a
further relegation as “battery storage” increases. So networks along with bulk
generation (pretty much everything upstream of the meter box) will have to
compete to survive and be relevant. The most obvious way for networks (and bulk
generation) to survive is three-fold…
· For electrical loads to be “bigger” (either in kW or kWh
terms) than what a prosumer’s own installation can supply. Electric cars would
seem to be a good source of such load.
· To incentivise export of surplus electricity, as we’ve seen
at Feldheim. So the feed-in tariff (buy-back rate) will have to be sufficiently
high for electricity prosumers to want to be a nett exporter rather just self-sufficient.
This will require EDB’s as well as traditional generators to offer some sort of
feed-in tariff from within their existing cost structure, which will in turn
require cost reduction and increasing scale of activities … a race to the
bottom is quite likely.
· Get into the business of “solar plus batteries”, either by
selling them or by leasing them. Leasing might prove to be a better option as
at least some degree of control would be retained.
The likely future of price regulation
Survival
of networks will require the overall price of delivered electricity to meet the
following criteria…
· In terms of imported electricity, to be lower than the cost
of self-generated electricity, at least for an equivalent reliability.
· In terms of exported electricity, to be high enough to
encourage export rather than just prosumption.
If we
step back from all this detail and consider that the raison d’ętre for
regulation was the perceived imbalance of power (economic, not electric) we can
quickly see that the balance of power is rapidly shifting in favor of
customers, thereby weakening the case for price regulation.
New Zealand
NZ – amending the distributed generation requirements
Introduction
The minimum
terms and conditions on which distributed generation can be connected to a
distribution network have been regulated since 30th August 2007.
This article examines the amendments to the requirements that will take effect
on 23rd February 2015.
Regulatory framework
The
original regulatory framework for connection of distributed generation was the Electricity (Connection of Distributed Generation) Regulations 2007. These regulations were revoked on 1st November
2010 by s166 of the Electricity Industry Act 2010 and are now in force as Part 6 of the Electricity Industry Participation Code.
The new Part 1A
In
August 2014 the Electricity Authority completed its operational review of Part
6 which resulted in a new Part 1A to Schedule 6.1, which sets out a simplified
connection process that can be used if the applicant meets certain conditions.
On 15th December 2014 the Electricity Authority issued v1.0 of its
Guidelines for connection of small scale (less than or equal to 10kW)
distributed generation to a local network.
Key
features of the new Part 1A include…
· Objectives including lowering the cost of connecting and
reducing the safety risk by ensuring that distributed generators advise the EDB of connection.
· Provision for using the simplified connection process if a
range of technical and operating standards have been met.
· A continuation of the very low maximum fees for applying,
correcting a deficient application and inspecting the generator.
· A continuation of the very short periods for acknowledging
and processing an application.
Preparing for Part 1A to take effect
The
Electricity Authority expects EDB’s to prepare for Part 1A to take effect by
amending its policies, processes and systems. Utility Consultants assisted
several EDB’s to meet their obligations back in 2007, and is well placed to
assist with Part 1A compliance. Pick this link or call Phil on (07) 854-6541.
NZ – revising the Input Methodologies
Introduction
Input
Methodologies (IM’s) are used to specify how various components of economic
regulatory models are to be calculated or manipulated, such as tax,
depreciation, cost of capital etc. This brief article notes the changes to
several IM’s that were ordered by the High Court as a result of Wellington
International Airports Ltd and others v Commerce Commission [2013] NZHC 3289.
Legal framework
The
legal framework for the IM’s is Subpart 3 of Part 4 of the Commerce Act 1986. This subpart inter
alia sets out the purpose of the IM’s, what issues they must address, and
the process for establishing and amending IM’s.
Determinations amended
The
following IM’s have been amended…
|
Sector |
IM
title |
Ref. |
|
Electricity |
Electricity
Distribution Services Input Methodologies 2012. |
[2012]
NZCC 26. |
|
Gas |
Gas
Distribution Services Input Methodologies Determination 2012. |
[2012]
NZCC 27. |
|
Gas
Transmission Services Input Methodologies Determination 2012. |
[2012]
NZCC 28. |
|
|
Airport |
Commerce
Act (Specified Airport Services Input Methodologies) Determination 2010. |
Decision
#709. |
Interested readers should examine the Amended IM
Publication in its fullness to
see the detail of the amendments.
NZ – rethinking the low fixed charge regulations
Introduction
The Electricity (Low Fixed Charge Tariff Option for Domestic Consumers)
Regulations 2004 have required electricity retailers to offer inter alia all primary residences a
tariff in which there is a fixed charge of not more than $0.30 per day. The
original thinking was that increasing fixed charges and the corresponding
decline in variable (kWh) charges discouraged energy efficiency.
The economic implications
These
low fixed charges have had a couple of economic implications…
· Retailers have had to repackage the mix of fixed and
variable distribution tariffs they are charged by the electricity distribution
businesses (EDB’s), so the fixed charge that the customer sees on their
electric bill is probably quite different from the EDB’s fixed charge.
· Variable (kWh) charges that are higher than they otherwise
might be encourage energy efficiency, but in doing so reduce the revenue
available to cover fixed distribution costs. EDB’s may need to increase their
variable charges which further discourages energy use, and which could ultimately
lead to a death spiral.
· EDB’s have high fixed costs, and Ramsey’s pricing work tells us that the most economically efficient way of
recovering high fixed costs is through fixed charges (price inelasticity and
all that good stuff)
The proposed rethink
Over
the last year or so the Electricity Authority has been considering the impact
of low fixed charges on competition, reliability and efficiency, specifically…
· Do the low fixed charge regulations inhibit efficient
distribution pricing and efficient retail pricing ?
· Do the low fixed charge regulations inhibit the efficient
operation of the industry and adversely affect retail competition due to
increased transaction costs ?
· Do the low fixed charge regulations inhibit retail
competition by inhibiting innovation ?
The
Authority notes issues such as possible impediments to developing TOU and DSM
tariffs, and cross subsidies between customer groups. Affected parties should
review the entire suite of documents on the Authority’s website.
Proposed timetable
At
this stage the proposed timetable includes approval of the project scope and
approach by February 2015, the development of a discussion paper and associated
Authority briefing by July 2015 and a 12 week consultation period around July
to September 2015. Pipes & Wires will comment further as this work
progresses.
NZ – further cost of capital revisions
Introduction
The
Commerce Commission has recently determined the following costs of capital…
· NZCC 38 [2014] that will apply to electricity line services and gas
pipeline services for information disclosure regulation.
· NZCC 41 [2014] that will apply to any Customised Price Path (CPP) applications
made by Vector and GasNet for either gas distribution or transmission services.
Key features of NZCC 38
The
key feature of NZCC 38 is the follow through from the High Court ruling that
led to the Commission adopting a 67th percentile to calculate the
WACC. This follows through to many clauses in Determinations NZCC 17, NZCC 26,
NZCC 27 and NZCC 28 (interested readers will need to follow the details
clause-by-clause).
Key features of NZCC 41
The
key feature of NZCC 41 is the setting of mid-point and 67th percentile
WACC’s for any CPP applications made by Vector (gas transmission or gas
distribution) and GasNet (gas distribution) before December 2015. These are as
follows…
|
Vanilla
WACC period |
Mid-point |
67th
percentile |
|
3 years |
7.11% |
7.64% |
|
4 years |
7.14% |
7.67% |
|
5 years |
7.22% |
7.75% |
Previous WACC decisions
Some
of the Commissions’ previous WACC decisions are as follows.
|
WACC
decision applies to |
Approx
date |
Mid-point
WACC |
75th
percentile WACC |
|
Vector,
GasNet CPP application before December 2015. |
December
2014 |
Vanilla
7.11%, 7.14%, 7.22% |
|
|
All
electricity CPP applications after 30th September 2014. |
September
2014 |
Vanilla
6.58%, 6.64%, 6.72% |
|
|
Auckland,
Christchurch Airports for 2015 disclosure year. |
July
2014 |
Vanilla
7.64% |
Vanilla
8.63% |
|
Vector,
GasNet for 2015 disclosure year. |
July
2014 |
Vanilla
7.54% |
Vanilla
8.35% |
|
Transpower
for 2015 disclosure year. |
July
2014 |
Vanilla
6.83% |
Vanilla
7.55% |
|
Wellington
Airport for 2015 disclosure year. |
April
2014 |
Vanilla
7.70% |
|
|
EDB’s
for 2015 disclosure year. |
April
2014 |
Vanilla
6.89% |
|
|
Powerco
gas CPP applications before March 2015. |
March
2014 |
Vanilla
5-year 7.54% |
Vanilla
5-year 8.35% |
|
Maui
pipeline (gas transmission). |
January
2014 |
Vanilla
7.64%, post-tax 6.85% |
|
|
Vector,
GasNet CPP applications before December 2014. |
December
2013 |
Vanilla
7.56% |
|
|
All
CPP applications before 30th September 2014 |
September
2013 |
Vanilla
from 6.26% to 6.69% |
Vanilla
from 6.97% to 7.41% |
|
Transpower |
July
2013 |
|
Vanilla
6.85% , post-tax 6.17% |
|
Vector
gas distribution, GasNet |
July
2013 |
|
Vanilla
7.65%, post-tax 6.97% |
|
Auckland
& Christchurch airports |
July
2013 |
|
Vanilla
8.00%, post-tax 7.75% |
|
All
electricity distribution |
April
2013 |
|
Vanilla
6.83%, post-tax 6.14% |
|
Maui
pipeline (gas transmission) |
February
2013 |
|
Vanilla
7.46%, post-tax 6.80% |
|
All
gas distribution and gas transmission DPP’s |
December
2012 |
|
Vanilla
6.63% |
|
Vector,
GasNet CPP’s |
December
2012 |
Vanilla
6.39% (5 years) |
|
|
Powerco
gas distribution |
October
2012 |
Vanilla
6.83%, post-tax 6.12% |
|
Cool video clip & magazine article
Most
of us are aware how asset management has changed over the years on a couple of
key dimensions. This article compares the maintenance of trams in England in
1937 with the maintenance of trams in Australia in 2014…
· Tramway cars & trolley buses (Wonders of World Engineering, issue 32).
· Asset management software helps create world-class services at Yarra
Trams.
These
two articles lead to the following trends…
· A migration from a simple time-based maintenance strategy to
a condition-based maintenance strategy.
· The increased role of asset condition information in driving
that maintenance strategy.
· The increased role of real-time, mobile technologies in
capturing data.
· The emphasis on a single, company-wide asset condition
database.
· The shift in emphasis from engineering excellence as an end
in itself, to engineering (asset management) excellence as a means to achieving
asset performance.
(Editor’s
note … Pipes & Wires is not endorsing the specific software product
featured in the Yarra Trams video).
Australia
NSW, ACT – the draft electricity revenue decisions
Introduction
The Australian Energy
Regulator (AER) has recently released its Draft Decisions for the
electricity distributors in the Australian state of New South Wales (NSW) and
the Australian Capital Territory (ACT) that will apply for the 4 years until 30th
June 2019 (noting that the period 1st July 2014 to 30th
June 2015 was covered by a transitional period discussed in Pipes & Wires #133). This article compares the parameters sought in each of
the 4 Regulatory Proposals with the AER’s Draft Decisions to provide some
context for further analysis.
Legal framework
The
legal framework for the electricity distribution decisions is Chapter 6 of the National Electricity Rules, which is made pursuant to the National Electricity (South Australia) Act 1996.
Summarising the decisions to date
· Key parameters of ActewAGL’s Draft Determination include…
|
Parameter |
Proposal |
Draft
Decision |
Revised
Proposal |
Final
Decision |
|
Total
revenue |
$892m |
$576m |
|
|
|
OpEx |
$384m |
$223m |
|
|
|
CapEx |
$372m |
$244m |
|
|
|
Depreciation |
$180m |
$177m |
|
|
|
Opening
RAB |
$850m |
$850m |
|
|
|
WACC |
8.99% |
6.88% |
|
|
· Key parameters of the AusGrid Draft Determination include …
|
Parameter |
Proposal |
Draft
Decision |
Revised
Proposal |
Final
Decision |
|
Total
revenue |
$12,189m |
$8,848m |
|
|
|
OpEx |
$2,888m |
$1,759m |
|
|
|
CapEx |
$4,421m |
$2,546m |
|
|
|
Depreciation |
$829m |
$825m |
|
|
|
Opening
RAB |
$14,370m |
$14,287m |
|
|
|
WACC |
8.83% |
7.15% |
|
|
· Key parameters of the Endeavour
Energy Draft Determination include …
|
Parameter |
Proposal |
Draft
Decision |
Revised
Proposal |
Final
Decision |
|
Total
revenue |
$5,256m |
$3,997m |
|
|
|
OpEx |
$1,489m |
$1,068m |
|
|
|
CapEx |
$1,746m |
$1,070m |
|
|
|
Depreciation |
$400m |
$400m |
|
|
|
Opening
RAB |
$5,593m |
$5,599m |
|
|
|
WACC |
8.83% |
7.15% |
|
|
· Key parameters of the Essential
Energy Draft Determination include …
|
Parameter |
Proposal |
Draft
Decision |
Revised
Proposal |
Final
Decision |
|
Total
revenue |
$6,824m |
$4,970m |
|
|
|
OpEx |
$2,513m |
$1,552m |
|
|
|
CapEx |
$2,618m |
$1,934m |
|
|
|
Depreciation |
$612m |
$613m |
|
|
|
Opening
RAB |
$6,770m |
$6,685m |
|
|
|
WACC |
8.83% |
7.15% |
|
|
Pipes
& Wires will comment further as the determination process progresses.
Aus – amending the distribution pricing rules
Introduction
Pipes & Wires #137 examined the draft distribution pricing rules proposed by
the Australian Energy Markets Commission (AEMC). This article examines the
AEMC’s Rule Determination that was released in late November 2014.
Background
The
draft rule proposed a new pricing objective requiring distribution prices to
reflect the company’s efficient costs of providing services to each customer.
One of the specific features of the draft rule change is that it will require
prices to individual customers to more accurately reflect the costs those
customers create. The AEMC is concerned that changes in customer lifestyles and
energy use technologies mean that load profiles can be very different from the
load profiles assumed by legacy pricing methodologies.
Features of the Rule Determination
Key
features of the Rule Determination include…
· Each network tariff must be based on the long-run marginal
cost of providing the service.
· The revenue recovered from each distribution tariff must
reflect the distribution business’ total efficient costs of supplying all
customers on that tariff.
· Distribution businesses tariffs and changes in tariffs must
be consistent over time and capable of being understood by customers.
· Distribution tariffs must comply with any state pricing
obligations (such as uniform prices across the entire state, which will dilute
the intention of economically efficient tariffs).
UK & Europe
Italy – migrating electricity investment to South America
Introduction
Italian
energy company ENEL recently bought 60% of Chilean energy company Enersis
SA for €8.25b in the form of 20% Enersis shares plus 100% of Endesa Latinamérica SA which owned 40% of Enersis. This article
looks beyond that acquisition to consider ENEL’s strategy of migrating capital
from Europe to South America.
ENEL’s plans
ENEL’s
current plans include…
· Closing the sale of 17% of Endesa.
· Selling about €4.4b assets in eastern
Europe.
· Consolidating the purchase of Enersis.
· Rolling out €2.1b of investment in Chile by 2020.
Economic growth
ENEL’s
main strategic driver is the recovering economic growth in South America
(forecast to be 2.3%) whilst growth in Europe lags at only 1.6%.
Regulatory and policy risks
South
American countries have proved to have a high degree of regulatory and policy
risk in the past, and it wouldn’t be unfair to say that many US and European
electric companies (and phone companies for that matter) have taken a haircut.
So it will be interesting to see how companies like ENEL have balanced those
risks against potentially higher investment returns.
England & Wales – the final water & wastewater
determinations
Introduction
Pipes & Wires #127 noted OFWAT’s compilation of the price controls that will apply to
England & Wales’ 10 water and wastewater businesses and 8 water businesses for
2015 – 2020 regulatory period. This article notes OFWAT’s Final Determination.
Key features of the Final Determination
The
Final Determination comprises a letter and an appendix addressed to each of the
18 regulated companies setting out the service standards and maximum prices.
The following documents provide useful summaries…
· Outcomes.
· Wholesale water and wastewater costs and revenues.
· Household retail costs and revenues.
· Non-household retail costs and revenues.
This
concludes Pipes & Wires coverage of the England & Wales water and
wastewater determinations.
North America
US – increasing fixed electric tariffs
Introduction
The
battle over increasing fixed electric tariffs seems to be intensifying. This
article picks up on a few recent news articles to determine the current state
of play.
The issues on each side of the divide
Just
in case anyone hasn’t been following this trend, the issues on each side of the
divide are…
· Electric companies that have historically recovered their
costs on a nett kWh basis are finding their revenues are eroding in the face of
increasing rooftop solar. They understandably want to migrate towards fixed
tariffs that are independent of both the direction and magnitude of the kWh.
· Advocates of rooftop solar claim that higher fixed charges
reduce the incentive for rooftop solar (which it does), and they understandably
want tariffs to retain a high nett kWh component.
The regulatory takes on this issue
States
regulators seem to be taking a range of differing positions on the issue … a couple
of those positions are as follows…
· Wisconsin – the WPSC has recently approved significant increases in both the We
Energies and the Wisconsin Public Service Corporation’s fixed tariffs (in the case of We Energies, from $9 per
month to $16 per month). The WPSC was divided on the issue, and understandably
advocates of rooftop solar are angry.
· Arizona – the Arizona
Corporation Commission sharply reduced the Arizona
Public Service Company’s proposed $50 per month rooftop solar charge to $5 per
month.
· Florida – the Florida
PSC agreed that the $2 per Watt solar rebate program was
flawed, and terminated that program as of 31st December 2015.
· South Carolina – the SCPSC has developed what commentators claim is an innovative and
forward-looking rooftop solar regulatory framework in which the feed-in
multiple is 1 and customers can keep their existing tariff structure until
2025. This model seems to have pleased both sides of the divide.
The critical issues in amongst all this
A
couple of critical issues amongst all this are…
· Retaining high nett kWh charges (with corresponding low
fixed charges) provides stronger short-term incentives to install rooftop solar,
and probably further erode nett kWh revenue. The possible response of
increasing nett kWh charges to make up for lost revenue will provide an even
stronger incentive for more rooftop solar (accelerating the death spiral)
whilst also extracting an increasing subsidy from those customers who don’t
have solar (including the poor who can’t afford them).
· Restructuring tariffs to a higher fixed charge with lower
(nett) kWh charges weakens the short-term incentive but strengthens the
long-term incentive for rooftop solar. This could result in more solar, albeit
over a longer period.
· What seems to be a determined unwillingness on the part of
rooftop solar advocates to acknowledge that the local distribution network that
so many seem keen to remain connected to has a high fixed cost regardless of
the nett kWh. It’s fine if customers with solar want
to go permanently off-grid, but the issue needs to be forced that those
customers can’t stay connected and not pay the full long-run economic cost of
connection.
· The importance of regulators correctly balancing the promise
of cheap solar energy with the fair and reasonable recovery of legacy
investments that regulators have previously committed to.
Pipes
& Wires will comment further as trends, patterns and specific issues
emerge.
US – possible conditions on the Exelon – Pepco merger
Introduction
Previous
issues of Pipes & Wires have examined Exelon’s proposed acquisition of Pepco. This issue notes a few more approvals but also notes pressure
on the Maryland Public Service Commission (PSC) to impose additional conditions.
Key features of Exelon’s offer
Exelon
has made a $6.8b all-cash offer of $27.25 per Pepco share, which represents a
24.7% premium to Pepco’s closing price on the announcement day.
The required approvals
The
following regulatory approvals are currently being sought…
|
Regulator |
Current
status of approval |
|
Federal Energy Regulatory Commission. |
Application
approved 20th November 2014. |
|
District of Columbia Public Service
Commission. |
Application
filed on 18th June. |
|
Delaware Public Service Commission. |
Application
filed on 18th June. |
|
Maryland Public Service Commission. |
Application
filed on 19th August, approval may take up to 15 months. |
|
New
Jersey Board of Public Utilities. |
Application
filed on 18th June. |
|
Virginia
State Corporation Commission. |
Application
approved 8th October 2014. |
Pressure on the Maryland PSC
Pressure
on regulators approving mergers tends to fall into 3 categories…
· What we might call genuine short-term customer protection
issues, such as ensuring a fair sharing of merger benefits and assurances that
strengthened market positions won’t be abused. Customer advocacy groups tend to
make strong representation to the state regulators and the FERC on these
matters.
· What we might call long-term customer protection issues,
such as industry structure, market share trends, efficiency mechanisms, tariff
structures, fuel mix, transmission grid requirements, technology roll-outs,
efficiency of long-term electricity purchase contracts etc. Representation to
state regulators and the FERC tends to come from economic policy groups who can
see further than short-term tariffs.
· Wider public policy issues, such as requiring the merged
entities to implement renewable energy programs, retaining a specified number
of jobs within the county or state, or retaining corporate control with the
state. A wide range of single issue groups make representation to state
regulators in attempts to make supporting their cause a condition for approval.
The pressures
on the Maryland PSC appear to be from the 1st and 2nd
categories…
· Apparently insufficient sharing of merger benefits with
customers, and strengthened market positions.
· An apparent unwillingness by Exelon to adopt policies that
will increase the roll-out of clean technologies, and a proposal to disallow
demand response.
It
looks like the Maryland PSC approval will be lengthy, however Pipes & Wires
will comment as news emerges.
Asia
Japan – regional coordination of electric transmission
Introduction
Pipes & Wires #123 discussed Japan’s transition towards a liberalised
electricity market. This article notes the passing of legislation to establish
a nation-wide grid operator on 1st April 2015.
Wider reform agenda
Wider
features of the reform include…
·
Establishing
a nation-wide grid operator in 2015, with authority over real-time generation
dispatch. This will presumably have to consider the limit of 1,500MW transfer
capacity of the 4 back-to-back convertors that interconnect the 50Hz grid in the east and the 60Hz
grid in the west.
·
Establish
a separate electricity regulator in 2015. Many policy and regulatory functions
are currently performed by the Ministry of Trade & Industry.
·
Plans
to introduce legislation in 2014 to introduce competition into the domestic
market in 2016.
·
Plans
to introduce legislation in 2015 to require operational and financial
separation of lines and energy by about 2018. This would appear to stop short
of full ownership separation.
·
Abolition
of all price controls by about 2018 (presumably only retail price controls).
Legislation enabling nation-wide transmission
In
August 2014 legislation was passed to establish the Organisation for
Cross-regional Coordination of Transmission Operators (OCCTO) as part of the Electricity Business Act.
The purposes of OCCTO
OCCTO
will have the following purposes…
· Promoting the integration of regional transmission grids to
facilitate nation-wide electricity trading.
· Providing national coordination of generation-demand balancing
under both normal and emergency conditions.
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
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