Pipes & Wires

Though leadership of critical energy & infrastructure matters

Issue 180 – October 2018


From the editor’s desk…


Welcome to Pipes & Wires #180. Under the heading of energy markets and tariffs, this issue begins with an in-depth look at the draft report on New Zealand’s electricity pricing review, followed by a look at downward pressure on fixed prices in the US.


We then examine competing views on Mercury and Infratil’s bid for Tilt Renewables, and then look at some emerging trends of regulating emerging technologies in the United States.


We then look at 3 electricity distribution draft revenue decisions in Australia, and conclude with a look at the changing energy and climate policies in Australia. So … until next month, happy reading…


What we’re seeing…


·     A possible emerging trend of regulators squeezing fixed monthly charges which are increasingly seen as interfering with renewable energy policy objectives.


·     Increasingly mixed messages about closing down coal-fired stations to reduce emissions on the one hand, and keeping them open to improve grid security on the other hand.


·     Inquiries and reviews that are prompted by security of supply scares having their official terms of reference subordinate security of supply to reducing CO2 emissions.


·     Legacy thermal generation facing steeper evening ramping rates as solar hollows out the daily demand profile.


·     Some regulators warming to the idea of allowing a “sand pit” for electric companies to play with emerging technology ideas in, and allowing recovery of the reasonable costs of that playing.


·     Regulators defining multiple classes of services and payment categories for battery storage.


·     Diversified electric companies reducing their exposure to volatile energy revenues and increasing their exposure to predictable lines revenue (the opposite of what was fashionable a few years ago).


·     Heightened appreciation of coal-firing capability during gas supply interruptions.


·     A shortage of skilled project managers and electricity network designers.


·      Gas turbine stations being recognised as important for providing grid security.


·     A mixed bag of revenue determinations … some tougher than expected, some easier.


Recent client projects


Recent client projects include…



·     Developing a smart metering strategy.


·     Advising on likely available electrical contractors.


·     Undertaking a customer survey to identify customer preferences for off-peak EV recharging.


·     Developing a strategy for complying with the related party transaction provisions.


·     Advising on the regulatory implications of an aging timber transmission pole fleet.


·     Compiling some introductory thoughts on digital transformation and blockchain.


·     Facilitating a series of client workshops to better understand asset information criticality and in-service failure risk.


·     Assessing the strength of asset management practices.


·     Reviewing recent AER decisions to understand the expectations around asset management practices and methods.


·     Reviewing the AER’s recent treatment of network transformation expenditure.


·     Compiling overhead conductor and wooden cross-arm fleet strategies.


·     Identifying the issues around customer-owned lines on private land.


·     Developing a risk-based tree trimming strategy.


·     Developing an EV charging strategy.


·     Analysing transmission charges as a percentage of total electric bills.


·     Compiling a strategy for improving the resilience of a sub-transmission network.


·     Developing a best-practice guideline for smart metering.


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Energy markets & tariffs


NZ – draft report on the enquiry




Pipes & Wires #174 examined the review of the electricity sector that would have a particular emphasis on whether the current electricity market is delivering fair and equitable prices to end consumers. This lengthy article examines the key findings of the First Report.


The reviews terms of reference


The review’s terms of reference included inter alia


·     Examine whether the prices paid by end consumers are efficient, fair and equitable. Various perspectives on equitable are noted, including consideration of the costs being socialised or spread on different bases.


·     Consider the entire electricity supply chain.


·     Evaluate whether the regulatory frameworks for both competitive and monopoly segments of the supply chain are delivering efficiency and fairness.


·     Consider whether the current market and regulatory framework will both enable and deliver benefits from emerging technologies and innovation.


·     Include issues of security, reliability and environmental sustainability when considering whether prices are efficient, fair and equitable.


·     Consider what factors if any may form entry barriers or limit competition along the supply chain, particularly at the boundary of contestable and non-contestable services.


·     Consider the impact of market behavior on various customer segments.


·     Consider cost allocations between market segments, including the impact of the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004.


·     Consider how new technologies are likely to effect services, price and different customer groups, and how the current regulatory framework might promote the benefits of emerging technologies.


The TOR specifically excludes matters of technical detail, consideration of the Input Methodologies, and evaluation of regulatory body’s performance against their statutory objectives.


Key findings of the First Report


The key findings of the First Report include…


·     Reliability - the electricity system is broadly reliable. Investment is sufficient to meet demand, at least for now.


·     Emissions – about 80% of demand is already being met by renewable generation. This will help move towards zero emissions.


·     Affordability – overall, the picture is not so good. Since 2000, residential prices have risen faster than most other OECD nations, and about 103,000 households spend more than 10% of their household income on energy.


·     Fair pricing – again, not so good. Residential prices have risen 79% since 1990, whilst industrial prices have risen 18% and commercial prices have fallen 24%.


·     Retail market – this seems to be diverging into 2 quite separate segments of those who enjoy low prices from shopping around and capturing the prompt payment discounts, and those who don’t.


·     Subsidising emerging technologies – current pricing structures will result in subsidies from those who don’t have rooftop solar or EV’s to those who do (long-time Pipes & Wires readers will recognise that such subsidies are not new, and have long been a feature of air conditioners). Moreover, the cost of any additional capacity for peak-time charging of EV’s is likely to fall disproportionately on low-income customers.


·     Generation market power – some concerns have been expressed about generators ability to exercise market power when supply is tight.


·     Decarbonisation – this will obviously require a lot more annual generation (almost double by my reckoning, requiring the annual capacity factor to increase from about 50% to about 85%), but that current market and industry arrangements should be able to meet demand growth provided there are strong incentives to invest.


·     Transmission – decarbonisation will require significant grid investment. These was no evidence that Transpower is making excessive profits.


·     Distribution – several factors are thought to be holding things back, including outdated pricing structures, aging assets, the quality of governance, short planning horizons, access to meter data, and the small size of distributors. There was no evidence that distributors are making excessive profits.


·     Retailers – competition has generally increased, but not all customers have been able to take advantage of that.


There is also a useful at-a-glance 1 pager. Pipes & Wires will comment further once the Final Report emerges.


US – downward pressure on fixed charges




Fixed charges have been a sticky point for many years (probably even decades), and have become a bit of an ideological frontier. This article notes what could be a trend of regulators increasingly rejecting fixed charges.


The arguments around fixed charges


Some of the arguments around fixed charges include…


Arguments in favor of fixed charges

Arguments against fixed charges

·  Distribution companies have high fixed costs that need to be recovered regardless of customers kWh consumption.

·  Legacy consumption profiles that adequately recovered fixed costs on a kWh basis no longer hold true (air conditioning, rooftop solar etc).

·  It reduces the need for volume risk premiums to be added to the kWh component of the bill.

·  Dampens the incentive to reduce kWh consumption.

·  Reduces the benefits (avoided costs) of rooftop solar.

·  They disproportionately impact low income families.

·  They’re just not fair !!!


There are probably heaps more arguments on both sides, but these seem to be the main arguments (and which Pipes & Wires has extensively examined).


The emerging trend


The North Carolina Clean Energy Technology Center examined 46 actions on residential fixed charges during Q2 of 2018. The NCCETC notes that 3 states reduced residential fixed charges during Q2, which they note as an increase from the 1 or 2 reduction orders per quarter that previously occurred. These reductions are…







Reduce existing charge from $19.25 per month to $9.21 per month.


New York

Central Hudson Gas & Electric

Reduce existing charge from $24 per month to $19.50 per month.



Black Hills Energy

Rejected request to increase from $16.50 per month to $20.13 per month, and instead reduced to $8.77 per month.



Electric companies seem divided on whether an increase to 3 unfavorable decisions per quarter represents an emerging trend, but they do seem to agree it needs to be watched closely as regulators try to balance the various competing arguments of which the obligation to prevent tariff structures from interfering with public policy objectives seems to be getting louder.


Mergers & acquisitions


Aus / NZ - recommendation that Tilt shareholders reject offer




Pipes & Wires #179 noted Mercury and Infratil’s recent joint bid for the 29.1% stake in Tilt Renewables they don’t already own. This article notes recent public announcements by both Tilt and Infratil.


Recapping the deal


In May 2018, Mercury bought 19.9% of the Tauranga Energy Consumer Trust’s (TECT) 26.7% stake in Tilt for $144m cash, valuing Tilt at $720m. In August 2018 Mercury and Infratil offered the same $2.30 per share paid to TECT to Tilt’s remaining shareholders. TECT indicated that it will sell its remaining 6.81% to Mercury.


Infratil and Mercury also announced that they had obtained the approval of the Foreign Investment Review Board (FIRB).


The independent directors’ recommendations


In early September 2018 Tilt’s independent directors’ recommended that shareholders reject the $2.30 per share bid as “simply too low” and which “does not adequately recognise the value of current operational assets and the strong pipeline of future projects”. Infratil countered this recommendation with a statement that the offer is “fair and reasonable”. Details of the independent directors’ recommendations from mid-September include…


·     The independent adviser’s valuation range for Tilt is between $2.56 and $3.01 with a midpoint of $2.79, which is significantly above the $2.30 offer.


·     The $2.30 offer overlooks the significant shareholder benefits expected from the Dundonnell windfarm.


·     The $2.30 offer does not fully recognise the value of Tilt’s existing assets or its development pipeline.


·     The $2.30 offer is only an 8% premium to Tilt’s share price prior to the offer, which is considered insufficient.


Infratil’s response to Tilt’s recommendations


Following on from Tilt’s independent directors’ recommendations, Infratil commissioned its own expert advice which challenges the advice received by Tilt and estimates a valuation range from $1.87 to $2.46 per share. A key aspect of Infratil’s expert advice is that the WACC adopted by Tilt’s advisor is too low, and doesn’t adequately value either the uncertainty of Australia’s energy markets following the change in leadership nor the increased exposure to merchant prices when existing revenue contracts expire. Infratil goes on to say that adoption of its advisors mid-point WACC’s for Australia and New Zealand of 7.9% and 7.35% respectively would decrease the Tilt valuation by $0.44 per share.



Pipes & Wires will continue this story as the takeover continues.


Regulating emerging technologies


US – court concludes Missouri PSC does have EV charger jurisdiction




Pipes & Wires #174 noted the Missouri Public Service Commission’s decision that it did not have jurisdiction over EV charging stations. This article examines a recent Missouri Court of Appeals decision that says actually the PSC does have jurisdiction over EV chargers.


Recapping the Missouri PSC’s conclusions


As part of considering Ameren’s rate case, the Missouri Public Service Commission concluded inter alia that because the product being sold is a charging service, not the electricity itself, the PSC does not have jurisdiction over EV charging stations because they do not fit within the definition of electric plant in state legislation. It is fundamentally important to understand that the MPSC did not reject Ameren’s rate case, but rather determined that it had no jurisdiction to determine it. The following excerpts from media sources expand on this critical issue…


·     The board ruled that the installation and operation of EV charging stations is fundamentally different from operating an electric utility. That means that although utilities can enter that business, they cannot do it as regulated monopolies and may not spread the cost among all of their customers. They would have to operate in the free marketplace (quoted from MidWest Energy News, 24th April 2017)


·     Regulators concluded that if they had jurisdiction over electric vehicle charging infrastructure, that ruling "would conceivably assert jurisdiction over other similar battery-charging services, such as smart phone charging stations or kiosks, RV parks that allow vehicles to connect to the park’s electricity supply, or airports that connect planes to a hangar’s electricity supply while parked." (quoted from Utility Dive, 25th April 2017).


Key features of the Court decision


The Court’s decision was based inter alia on an appeal by Kansas City Power & Light that the Missouri PSC erred in refusing to include EV charging in KCP&L’s rate base on the basis that charging stations were not electric plant. Key features of the Missouri Court of Appeals decision include…


·     Agreement with KCP&L that the PSC erred both in determining that EV chargers did not fall within the statutory definition of electric plant because the product being sold is a charging service rather than the electricity itself, and that PSC jurisdiction over conceivably competitive activities was outside of the scope of Missouri’s public service statutes.


·     A deconstruction of the PSC’s reasoning that EV chargers were not selling electricity using a parallel argument that a self-service gas station is not providing any service but rather selling gasoline, and that indeed EV chargers do sell electricity.


·     More detailed reasoning is that the battery is merely a storage device, and the fact that the electricity is stored rather than used immediately does not convert the transaction from the “sale of electricity” to a “service”.


·     The view that the PSC’s analogies of laundromats and other charging facilities are unpersuasive.


·     The view that while the PSC’s views on conceivable competitive activities may be well-founded, nothing in the definition of electric plant authorises the PSC to exclude EV chargers.


The Court ordered the PSC to reconsider its decision consistent with the Court’s decision.


What might this mean for electric companies ?


The following table highlights the significantly different implications between the PSC’s and the Court’s decisions…



PSC’s decision

Court’s decision

Setting charging tariff

EV charger operators are free to set the charging tariff on the basis of a competitive market.


EV charging tariffs could be regulated.

Including in rate base

It cannot add the cost of the chargers to its regulated asset base and recover the cost through its regulated tariffs, which would effectively protect electric customers from subsidising EV chargers.


It can treat EV chargers as electric plant, add the cost to its rate base, and recover the cost of EV chargers from its customers at large.


Pipes & Wires will continue to examine this issue if and when it evolves.


US – are all customers equal before the law ?




Southern California Edison (SoCalEd) recently sought regulatory approval to inter alia interrupt customers with battery storage first during periods of distribution network congestion. This article examines SoCalEd’s request and the Federal Energy Regulatory Commission’s (FERC) rejection of that request.


Regulatory framework


The pertinent regulatory framework is s205 of the Federal Power Act which inter alia


·     (Requires that) all rates and charges … and all rules and regulations pertaining to such rates and charges shall be just and reasonable.


·     Prohibits making or granting any undue preference or advantage, or subjecting any person to undue prejudice or disadvantage.


·     Prohibits maintaining any unreasonable difference in rates, charges, services, facilities … as between classes of service.


SoCalEd’s request


As part of a rate filing in March 2018, SoCalEd sought to revise its Wholesale Distribution Access Tariff (WDAT) to allow it to inter alia interrupt supply to its customers with battery storage before interrupting customers without storage. This filing examines some very detailed issues around the application of s205 that goes way beyond what might appear to be the simple conclusion that s205 prohibits discrimination between customer classes, with a key issue being that SoCalEd is still refining its procedures for assessing the impact of battery storage on the distribution network.


FERC ruling


In its decision of August 2018 the FERC ruled inter alia that SoCalEd had failed to demonstrate why it is just, reasonable, and not unduly discriminatory or preferential to interrupt 1 particular class of customers without providing that customer with the opportunity to have their effects studied and the opportunity to pay for whatever system upgrades might be necessary for them to be interrupted on the same basis as other customers, and rejected that part of SoCalEd’s revised WDAT. The FERC did note, however, that were SoCalEd to offer a customer the opportunity to be studied for a system upgrade and that customer declines, then it could perhaps be just and reasonable to interrupt that customer.


Network regulatory decisions


Aus – the TasNetworks Draft Decision




TasNetworks distribution business is currently subject to a 2 year regulatory period ending on 30th June 2019 to align its distribution and transmission business regulatory cycles. This article examines the Australian Energy Regulator’s (AER) recently released Draft Decision that will apply to the transmission and distribution businesses for the 5 years commencing on 1st July 2019.


Regulatory framework


The regulatory framework is based on the National Electricity (South Australia) Act 1996, which provides for the making of the National Electricity Rules (version 111 at the time of writing). Electricity distribution determinations are principally made pursuant to Chapters 6 and 6A of the Rules.


The transmission determination process to date


The transmission determination process to date includes the following…




Draft determination

Revised proposal

Final determination











Opening RAB










Regulatory depreciation





Total smoothed revenue






The distribution determination process to date


The distribution determination process to date includes the following…




Draft determination

Revised proposal

Final determination











Opening RAB










Regulatory depreciation





Total smoothed revenue






Pipes & Wires will continue this story once TasNetworks submits its Revised Proposal.


Aus – the South Australia draft distribution proposal




SA Power Networks recently published their Draft Plan for the 5 year period starting on 1st July 2020. In addition to Pipes & Wires usual analysis of regulatory proposals (rate cases), this article also looks at the role of the Draft Plan.


Regulatory framework


The regulatory framework is based on the National Electricity (South Australia) Act 1996, which provides for the making of the National Electricity Rules (version 111 at the time of writing). Electricity distribution determinations are principally made pursuant to Chapters 6 of the Rules.


The role of the Draft Plan


The role of the Draft Plan is to inch forward in a less formal manner than the customary formal submission of the Regulatory Proposal. This provides opportunity for the applicant to demonstrate its customer engagement and that its’ spend plans align with customer preferences, but also to engage less formally with the AER on points of detail so that the Regulatory Proposal can be refined.


Key features of the process to date


Key features of the process to date include…



Draft Plan


Draft Determination

Revised Proposal

Final Determination













Opening RAB

Not stated





Nominal WACC












Smoothed revenue

Not stated






Pipes & Wires will comment further once SA Power Networks submits its Regulatory Proposal.


Aus – the Evoenergy revenue determination




The Australian Energy Regulator (AER) recently published its Draft Determination for the electricity distributor in the Australian Capital Territory (Evoenergy) for the 5 year period commencing on 1st July 2019. This article examines the key features of that Draft Determination.


Regulatory framework


The basis of the regulatory framework is Chapter 6 of the National Electricity Rules, which are made pursuant to the National Electricity Law.


Key features of the revenue reset process


Key features of the process to date include…




Draft Determination

Revised Proposal

Final Determination











Opening RAB





Nominal vanilla WACC










Smoothed revenue






Pipes & Wires will revisit this story when EvoEnergy submits its Revised Proposal.

Energy mix and grid security


Aus – coal makes a come back




The last 6 weeks have seen a significant change in the Australian political landscape, most notably the appointment of former Treasurer Scott Morrison as Prime Minister and Angus Taylor as Minister for Energy. This article examines the impact that these changes are likely to have on Australia’s climate change policies.


Background comments in the popular media


The popular media is overflowing with criticisms that Taylor rejects man-made climate change. He is also off to an apparently strained start with Victorian Energy & Environment Minister Lily D’Ambrosio.


The likely direction of climate change policy


Australia’s climate change policy is likely to include the following features going forward…


·     A commitment to energy sources that will provide cheaper electricity.


·     A focus on keeping the lights on.


·     A possible end of the National Energy Guarantee.


·     Dismantling the subsidies for wind farms.


·     Reliance on coal to reduce prices.


There’s obviously a lot of energy and not much climate change in the above … perhaps a lot should be read into Morrison’s separation of the ministerial portfolios of Energy and Environment.


Implications for the energy trilemma


Australia has undoubtedly moved towards the low emissions corner of the energy trilemma, which has resulted in increasing costs and declining reliability. Taylor’s stated intention is to move Australia back towards the low cost and high reliability corner of the trilemma, but in a world that seems to be on an inexorable path to low emissions regardless of the price and reliability implications Morrison and Taylor could go as quickly as they came.


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 classic historical photo’s with humorous captions looks at some of the salient features of price control. Pick here to download.


A potted history of electricity transmission


I’ve recently compiled a potted history of electricity transmission. Pick here to download.


Video series – Powering NZ


The team at Whiteboard Energy are compiling a series of cool 20 minutes videos on the history of electricity in NZ, which are now on YouTube…


·     Episode #1 – The Powerboard Of Fame.


·     Episode #2 – The Power Of The State.


The series eventually will run to 5 episodes … an opportunity to fund Episode #5 is here.


Wanted – old electricity history books


Now that I seem to have scrounged pretty much every book on the history of electricity in New Zealand, I’m keen to obtain historical book, journals and pamphlets from other countries. So if anyone has any unwanted documents, please email me.


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.