Pipes & Wires


Issue 146 – October 2015


From the editor’s desk…


Welcome to Pipes & Wires #146. This issue includes wider industry sector and geographical coverage, and starts with a couple of regulatory decisions from Australia and New Zealand. We then examine the use of batteries to substitute for temporary diesel generators, and the structural separation of a large electric company in the US. We then look at a couple of climate change policy issues and their possible impact on the electricity sector, and then look at possible nuclear stations in South Africa. This issue then concludes with a quick note on a merger appeal.


Matters for attention in NZ


Readers’ attention is drawn to the following matters…


·      The Health and Safety Reform Bill has now passed into law as the Health and Safety at Work Act and will come into effect on 4th April 2016.


·      Changes to the requirements for connecting embedded generation to distribution.


·      Increasing interest in ISO 55000:2014 in regard to asset management practices and systems, and the associated withdrawal of BSI PAS 55:2008.


·      Revised standard NZS 7901:2014 for Safety Management Systems.


Regulatory decisions


Aus – gas under pressure




APT Pipelines (NT) Pty Ltd recently submitted its proposed Access Arrangement for the Amadeus Gas Pipeline to the Australian Energy Regulator (AER) for the regulatory period 1st July 2016 to 30th June 2021. This article examines the proposed Arrangement to set some context for examining the AER’s draft and final decisions.


A bit about the Amadeus Gas Pipeline (AGP)


The AGP is a 1,629 km pipeline (including laterals) that supplies gas from the offshore Blacktip gas field southwards to Darwin and then on to Alice Springs. The pipeline varies in diameter from 350mm down to 100mm, and was completed in 1987.


The regulatory framework


The broad regulatory framework is the National Gas Law, which provides for the National Gas Rules to be promulgated. In particular Part 8 sets out the requirements for the pipeline owners proposed Access Arrangement, along with how the AER must evaluate that Arrangement.


Key features of the Access Arrangement


The following key features of the Access Arrangement are noted for comparison as the AER’s evaluation progresses…




Draft determination

Revised proposal

Final determination






Opening RAB










Nominal vanilla WACC











Pipes & Wires will comment further as the AER decisions emerge.


NZ – determining the electricity distribution WACC




The Commerce Commission recently released its WACC determination that will apply to all electricity distribution customised price-path (CPP) applications made on or after the 30th September 2015. This article examines the key features of that determination.


Regulatory framework


The regulatory framework for setting the WACC is set out in clause 5.3.28 of the Commerce Act (Electricity Distribution Services Input Methodologies) Determination 2010.


Key features of the WACC determination


Key features of the determination include…


Pre-tax vanilla WACC

3 years

4 years

5 years





67th percentile





NZ - previous WACC decisions


Some of the Commissions’ previous WACC decisions are as follows.


WACC decision applies to

Approx date

Mid-point WACC

75th (or 67th) percentile WACC

All electricity CPP’s after 30th September 2015.

September 2015

Post-tax vanilla 5.47% to 5.57%

Post-tax vanilla 5.94% to 6.04%.

Vector and Powerco gas pipelines for year ending 30th June 2016.

July 2015

Vanilla 6.65%.

Vanilla 75th percentile 7.46%.

Transpower for year ending 30th June 2016

July 2015

Vanilla 5.95%.

Vanilla 67th percentile 6.41%.

Maui CPP application before June 2016

June 2015

Vanilla 6.63% to 6.71%.

Vanilla 67th percentile 7.16% to 7.23%.

All electricity distribution for year starting on 1st April 2015.

April 2015

Vanilla 6.02%, post-tax 5.37%.

Vanilla 6.49%, post-tax 5.84%.

Wellington Airport for year starting on 1st April 2015.

April 2015

Vanilla 6.93%, post-tax 6.71%.

Vanilla 7.91%, post-tax 7.69%.

Powerco gas CPP application before April 2016.

March 2015

Vanilla 6.70% to 6.72%.

Vanilla 7.23% to 7.25%.

Maui Developments for 2016 disclosure year

January 2015

Vanilla 7.08%.

Vanilla 7.89%.

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%.


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%.



Aus – appealing the NSW and ACT revenue determinations




Pipes & Wires #143 examined the final electricity distribution revenue determinations for the Australian state of NSW and for the Australian Capital Territory (ACT) that were handed down in April 2015. This article notes the appeal of those determinations to the Australian Competition Tribunal (Tribunal) to set some context for the Tribunal’s final decisions.


The revenue determinations


All four determinations resulted in significant revenue reductions from those proposed…



Proposed revenue

Final determination

Final as a percentage of proposal









Endeavour Energy




Essential Energy





The appeals to the Tribunal


On 30th June 2015 the 4 electricity distributors applied to the Tribunal for a review of the AER’s determinations, which was granted on 17th July 2015. The basis of the appeals is that the AER made material errors in determining key components of the determinations.


Legal framework for the appeals


The legal framework for the appeals is set out in s71B of the National Electricity Law.


Next steps


Pipes & Wires will comment further once the Tribunal publishes its decisions.


Cool video clip…


This quaint video from the Cleveland Electric Illuminating Company in 1956 serves as a reminder of how electricity used to be. Apart from the obvious absence of ICT and PPE things seem pretty much the same today.


Solar, batteries & nett metering


US – substituting batteries for diesel generators




We’re all familiar with how the increasing capacity and declining costs of battery technologies is expanding the range of uses for batteries, typically in permanent situations. This short article examines Consolidated Edison’s (ConEd) substitution of 500kW Lithium Ion batteries for temporary diesel generators.


What ConEd are doing


Like many other electric companies, ConEd has previously used diesel generators to continue supply during outages, provide peak kW’s, or defer network investment. As part of a pilot project in conjunction with the New York State Energy Research & Development Authority, ConEd has been developing a battery roll-out program to replace the use of diesel generators. Field trials will commence soon, and ConEd expects to obtain the results of those trials around April 2016.


The specific technologies


The Transportable Energy Storage System is based on a 500kW Lithium-Ion (Li-On) battery with a capacity of 800kWh, and is being developed in conjunction with Canadian battery manufacturer Electrovaya. The battery characteristics have been designed to emulate a diesel generators’ characteristics.


Key advantages of batteries over diesel


Diesel generators are heavy, noisy and .… let’s face it …. smelly, whilst batteries are quiet and don’t smell. That makes for less public impact and disruption for temporary, street-side supplies. Brilliant…


Industry structural changes


US – separating renewable and fossil generation




NRG Energy recently announced that it would separate its renewable generation activities into a separate business as part of the NRG Reset program. This article examines the key features of that program.


A bit about NRG Energy


NRG is one of the giant electric companies in the United States, supplying 3,000,000 customers across all 50 states and Washington DC. NRG owns and operates about 50,000 MW of gas, coal, oil, nuclear, wind and solar generation across the US. Annual revenues are about $15.8b, and EBITDA is about $2.9b.


The planned business separation


NRG will separate its renewable and electric vehicle charging businesses into a business to be called “GreenCo” whilst the legacy generation, wholesale and retail businesses will remain in a business called NRG Yield. The separation is expected to be completed by 1st January 2016.


What NRG hopes to achieve by separating


Most of us would appreciate that renewable and fossil generation businesses have different investment characteristics and are also at very different phases of their life cycles ie. renewables are consuming cash, whilst fossil generation tends to be generating cash. In addition to this issue, NRG hopes to achieve the following…


·      Separation of high growth activities from low-growth (yield) activities.


·      Better separation of the differing strategic drivers for each business.


·      Making the renewable business more nimble and lower cost.


·      Separation of activities that have differing costs of capital.


·      Responding to societal expectations of “clean, green energy”.


The editor comments


Most of us appreciate that investors will have definite preferences for yield and growth stocks. It appears that those preferences might increasingly be based on investor preferences for renewable energy.


Climate change


US – adopting an aggressive approach to CO2 emission reductions




A bill aimed at aggressively reducing CO2 emissions by at least 34% by 2025 was recently introduced to the US Senate by the Senate Democrat wing of the Energy & Natural Resources Committee. This article examines the American Energy Innovation Act 2015.


The current emission reduction target


The current administration’s emission reduction target is to reduce emissions to around 72% of the 2005 emissions by 2030. The target proposed in the Act is about 66% of 2005 emissions by 2025.


Key features of the bill


The bill is very broad, and certainly covers a lot more than just emissions reduction. Key features include…


·      Promote customer access to billing and consumption data.


·      Requiring the Federal Trade Commission to investigate whether network interconnection practices are impeding the roll-out of embedded generation.


·      Providing for emergency cybersecurity regulations, and allowing electric companies to recover the cost of compliance.


·      Requiring a study of capacity market outcomes in regional markets.


·      Providing for a more coordinated federal response to possible coal supply shortages.


·      Providing for more extensive information to be gathered on oil and gas reserves.


·      Requires RTO’s to report on barriers to embedded generation.


The political context


Political comment suggests that the Act doesn’t have a dog’s show of passing through the Republican-controlled Congress, so it appears that the Act is more of an awareness gathering tool ahead of the 2016 presidential election. The Act’s announcement was apparently also timed to coincide with Pope Francis’ (who has become well known for broadening the papal pronouncements to include climate change) visit to the United States.


The likely impact on the electricity sector


At first read, it would seem that there will be more minuses than pluses for the electricity sector. Sure there will be provision for cost recovery around additional cyber security, but on the whole the industry would be scrutinised and examined by many government agencies ostensibly to find out why there isn’t more embedded generation.


Aus – aligning energy policy to climate change policy




For those who actually noticed, Australia had a change in Prime Minister in mid-September. This short article examines inter alia the replacement of Ian Macfarlane as Minister of Resources & Energy by Josh Frydenberg, and whether we might expect any significant changes in thinking.


Frydenberg’s political career to date


It is noted that Frydenberg was previously the PM’s Parliamentary Secretary with special responsibility for the government’s deregulation agenda.


Where might Australia’s energy policy go ??


It’s obviously early days, so the top-tier issues like ministerial re-assignments are dominating the media at the moment. However the following points are of interest…


·      Although Turnbull has pledged to stick with the Direct Action climate plan, Abbott’s proposed abolition of 2 renewable energy agencies will be abandoned.


·      Various clean energy agencies appear to be set for consolidation, and will report to the Minister for the Environment.


·      Frydenberg was an open and keen supporter of nuclear power, and also supports shale gas.


·      Several former ministers (Macfarlane, Baldwin and Hockey) who didn’t think much of wind, solar or climate science are gone.


The obvious signs of policy shifts begin to emerge


Two weeks after the change in Prime Minister, it appears that the Clean Energy Finance Corporation (CEFC) will have its mandate widened to invest in large-scale wind farms. Readers will remember that Tony Abbott wanted to abolish both the CEFC and the Australian Renewable Energy Agency, whilst his ministers instructeded the CEFC to direct investment away from wind and rooftop solar.


We might therefore conclude that Turnbull’s government is likely to significantly align energy policy to a man-made climate change view.


Energy policy & markets



South Africa – building the next nuclear station




Back in late 2011, Pipes & Wires #107 examined the South Africa’s decision to approve 9,600 MW of nuclear generation. This article examines recent movements on that issue.


Where the policy got to


In late 2011, South African Energy Minister Dipuo Peters signed off a proposal for 9,600MW of nuclear capacity as part of an anticipated 42,000 MW of new capacity to be built by 2030. Commissioning of the nuclear plants was forecast for 2024 or 2025.


Recent moves


Talk of nuclear power has erupted into the media, and not surprisingly various competing voices are clamoring to have their say. Those voices range from the anti-nuclear brigade saying “no way”, to Japanese officials who were present at Fukushima expressing caution, to other factions saying that South Africa needs reliable generation that is not coal-fired. So the pressing issue is to make sense of those concerns and achieve a workable balance.


So where might South Africa go with its nuclear program ??


The emerging picture of nuclear power contains some very obvious themes…


·      It tends to be very expensive, with final costs often double or triple the initial estimates.


·      Some form of guaranteed minimum price is required by the developers. These have proved to be politically sensitive in the UK and in Europe, and there is nothing to suggest it wouldn’t be in South Africa.


·      Public safety always remains a concern, despite the 3 most memorable nuclear power station accidents arguably resulting from poor risk management.


·      Politicians will always nit-pick.


Like it or not, the major unresolved issues around nuclear power are political and economic (and are certainly not technical). The South African government and its society at large will need to do some hard thinking and reach a consensus on those political and economic issues to come close to achieving a 2025 commissioning date (which already looks like 2030).


Aus – increasing investment certainty for renewables




We all appreciate the importance of investment certainty. This rant and rave from me notes recent moves in South Australia to improve investor confidence in the renewable energy industry, and contrasts this with the declining investment certainty offered to the legacy electricity supply chain with a view to encouraging policy makers to level the playing field.


South Australia’s recent moves


A key feature of the new regulations will allow a wind farm developer to apply for a 25 year license to build a wind farm on crown land, with an option for a further 25 year renewal. A couple of wider points include…


·      There is a similar trend with setting long-term feed-in tariffs for rooftop solar to “provide investor confidence”.


·      Given the uncertainty of market prices going forward, providing certain returns (ie. sale prices) to one segment of generation will inevitably require a subsidy from other segments and ultimately from electric customers through their monthly bill.


·      There is the possibility of reduced renewal periods for hydro consents.


·      There is an increasingly uncertain policy environment that makes it difficult to predict grid and network costs for even 5 years.


The importance of investment certainty


Efficient investment in any sector requires the investor to have confidence that they will earn a long-term return that exceeds their cost of capital … what other motivation would there be for investing ??


The disconnect between renewables and the legacy supply chain


What I really want to tackle in this article is the disconnect between increased certainty for renewables on the one hand, and declining certainty for the legacy supply chain on the other hand. I’d really encourage policy makers and regulators to remember where most of our electricity comes from, and ensure that the key elements of the legacy supply chain such as thermal and hydro generation, transmission and distribution get equivalent recognition of the need for investment certainty.


Mergers & acquisitions


US – Exelon and Pepco plan to appeal Washington DC PSC’s rejection




Pipes & Wires #145 noted that Exelon and Pepco obtained regulatory approval from 5 of the 6 state regulators for their planned merger, whilst the Washington DC Public Service Commission (PSC) rejected the merger. This article briefly notes Exelon and Pepco’s plans to appeal that rejection.


The plan to appeal


In late September a joint statement was issued that Exelon and Pepco believe their merger plan is in the public interest, and they will continue working to complete the merger. Exelon has filed a request for a re-hearing with the Washington DC PSC, and a result could be expected within a month or 2.


Pipes & Wires will comment as the re-hearing process progresses.


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....


·      Facilitating a board workshop on the likely impact of solar on distribution.


·      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...


·      No events scheduled.


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…


·      Economic Operation Of Power Systems (Kirchmayer).


·      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.


Cool stuff


Newly published book – “Keeping The Lights On”


Well-known electricity historian and author Helen Reilly has recently published her latest book “Keeping The Lights On – The History Of System Operations In New Zealand 1939 – 2013”. Pick here to order your copy for only $46.50 from Grid Heritage. It’s a thoroughly good read, and complements Helen’s previous book “Connecting The Country”.


House-keeping stuff


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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 offensive material from linking to any websites contained herein, or from any republishing by a third-party whether authorised or not, nor from any comments posted on Linked In, Face Book or similar by other parties.