Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #181, which includes several articles on the “what we’re
seeing” themes from below such as regulatory push-back against wind-farm
interconnections, and heightening concern around foreign ownership of essential
infrastructure.
We
start this issue with 3 issues on regulating emerging technologies (fixed
charges and rooftop solar, and EV chargers), and then look at 2 network
regulatory decisions from Australia and New Zealand. We then look at 2 large
mergers (1 in Australia and 1 in the United States), and conclude with a good,
solid engineering article about big HVDC lines. So … until next month, happy
reading…
What we’re seeing…
· What seems like regulatory push-back
against the large transmission lines required to interconnect wind-farms.
· Heightening concern around foreign
ownership of essential infrastructure.
· 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…
· Identifying learnings from the RIIO –
ED1 reset on behalf of an Australian distributor.
· 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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Regulating emerging technologies
US – increasing fixed charges for embedded generators
Introduction
Downward
pressure on fixed electric distribution charges to better incentivise rooftop
solar is a common theme for Pipes & Wires. This article examines a recent
regulatory determination from the US state of Kansas.
Key features of Westar’s rate case
Westar (along with its subsidiary Kansas Gas
& Electric) recently sought inter
alia regulatory approval to replace its existing two-part tariff for
embedded generation customers with a three-part tariff for those customers who
installed generation after 28th October 2015.
Key
features of the new tariff include a demand charge of $3 per kW in winter and
$9 per kW in summer. The overall rate case also proposed a $66m revenue cut, or
about $3.80 per month for an average residential customer.
Salient features of the regulatory
decision
Some
salient features of the Kansas Corporation Commission’s decision include…
· The KCC agreed that a cost of service
based on three-part rate consisting of customer charge, demand charge and
energy charge is appropriate for residential private DG customers to better
recover the costs of providing service to that class or sub-class of customers.
· The KCC found that that a class cost of
service study provides sufficient support for design of a residential private
DG tariff and no further study is necessary.
· The KCC found that DG customers use the
electric grid as a backup system resulting in their consuming less energy than
non-DG customers, which results in DG customers not paying the same proportion
of fixed costs as non-DG customers.
· The KCC thus finds DG customers are
being subsidised by non-DG customers.
· The tariff proposed by Westar for
non-grandfathered residential DG customers would eliminate most of the
cross-subsidy that the KCC has found exists in favor of residential customers
with DG.
The editor comments
It
is encouraging to see a regulator formally recognising that…
· Embedded generation customers are not
paying their fair share of distribution costs.
· That multi-part tariffs are an
appropriate means for more precisely recovering those costs.
Some
might also point out that this is simply a logical consequence of regulators wanting
to see cost-reflective tariffs.
US – paying for EV charger roll-outs
Introduction
Recovery of the cost of EV charging
station has proved to be a thorny issue for investor owned electric companies,
and highlights a bit of a disconnect between achieving public policy outcomes
and actually getting paid for it. This article examines Duke Energy’s Park
& Plug program in the US state of Florida to see how the cost recovery might
work.
A bit about Duke Energy’s Park & Plug program
The Park & Plug program will install 530 charging stations throughout Duke’s
service area in Florida during the 2019 year as part of a pilot that will
continue through to 2022. The program is working with community groups to
install chargers that target multi-unit housing and workplaces around major
traffic corridors.
Duke Energy supplies about 1,800,000
customers within a 13,000 square mile service area in Florida, as part of its
7,500,000 electric customers across Florida, Indiana, Kentucky, Ohio, North
Carolina and South Carolina.
Key issues regulation and cost recovery
Some of the EV charger regulatory and cost
recovery issues Pipes & Wires has examined recently include…
·
Whether EV charging is simply a service,
or is the supply of electricity (Pipes & Wires #180). This is actually very
fundamental as it determines whether an EV charger falls within the definition
of electric plant (at least within the state of Missouri), and hence whether
the state regulator has jurisdiction over EV chargers.
·
Whether EV chargers can be included in the
rate base. Inclusion in the rate base enables the electric company to recover
the cost from all its customers through its regulated tariffs, which arguably
means a subsidy for those who own EV’s from those who don’t.
·
Whether EV charging tariffs can be set by
the market, or whether they can be regulated by the state.
The likely outcomes for Duke’s Park & Plug
Duke Energy received approval from the
Florida Public Service Commission in late 2017, which included an $8m agreement
with the Florida Public Service Commission, but apart from that details are
sketchy.. Pipes & Wires will comment further as
this issue progresses.
US – approving wind farm grid connections
Introduction
Pipes & Wires analysis of how emerging
technologies are being regulated takes an interesting turn as this article
examines not so much the emerging technology itself (wind) but rather the
transmission grid required to interconnect the wind farm.
The Corona Wind Project
Pattern Development’s 2,200MW Corona Wind Project in east-central New
Mexico recently received approval from the New Mexico Public Regulation
Commission in October 2018. Corona will comprise 950 wind turbines each rated
at 2.3MW.
It is intended that Corona will connect to
the SunZia Southwest Transmission Project 520 mile 500kV transmission lines that would provide
about 3,000Mw of transmission capacity westward to Arizona and California.
About 320 miles of SunZia crosses New Mexico, and that forms the subject of
this article.
The New Mexico PRC’s rejection of the SunZia Southwest
Transmission Project
In September 2018 the New Mexico PRC denied approval of SunZia, despite the Arizona Corporation Commission granting
approval for the 200 mile segment of SunZia within Arizona in early 2016. This
rejection was based on insufficient definition of the line route, and was
without prejudice (meaning that SunZia can submit a new application with
increased line route detail). It is to be hoped SunZia’s rejection is simply
because of insufficient detail of the line route, and not because of any deeper
issues.
The editor comments
In amongst the varying approaches to
regulating emerging technologies, this approval of a wind farm whilst rejecting
the necessary transmission interconnection seems quite tricky, and could
potentially derail some very large scale policy initiatives such as
California’s target of 100% clean energy by 2045.
Network regulatory decisions
NZ – setting the next Transpower price-quality path
Introduction
The Commerce Commission has
recently published its process,
framework and approach for
setting the next 5 year individual price-quality path (IPP) that will apply to
Transpower from 1st April 2020, referred to as RCP3. This article
examines the key features of that paper.
Regulatory framework
The regulatory framework for
Transpower’s IPP is set out in Subpart
7 of Part 4 of the Commerce Act 1986.
Key features of the RCP3 expenditure assessment approach
Key features of the
Commission’s approach will include…
· Three distinct phases of Review – Determine – Set.
· Proportionate scrutiny of the RCP3 proposal that will match the
level of scrutiny to the expected impact of price and supply quality on
customers, with an incremental approach that will also consider the costs of
that scrutiny.
· Reliance on the verification report to define both the breadth and
depth of scrutiny.
· A building block approach to determine the Maximum Allowable
Revenue (MAR), subject to adjustments.
· Smoothing of the MAR into a price path both within RCP3, and from
RCP2 to RCP3.
Next steps
One of the next steps will be
for the Commission to publish the verifiers report. Pipes & Wires will
comment further when that report is released.
Aus - the Northern Territory electricity distribution revenue
reset
Introduction
The Australian Energy Regulator
(AER) recently published its Draft
Determination for
the electricity distributor in the Northern Territory, the Power
& Water Corporation, for
the 5 year period commencing on 1st July 2019. This article examines
the key features of that Draft Determination.
A bit about NT Power & Water
The electricity supply chain in
the NT comprises 3 entities owned by the NT Government…
· Power & Water Corporation provides inter alia electricity network services. Jurisdiction for
regulating Power & Water’s electricity networks has recently transferred
from the (NT) Utilities
Commission to the
Australian Energy Regulator.
· Jacana Energy retails electricity to about 80,000 customers.
· Territory Generation generates about 2,000GWh per year.
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…
|
Parameter |
Proposal |
Draft Determination |
Revised Proposal |
Final Determination |
|
CapEx |
$347m |
$316m |
|
|
|
OpEx |
$358m |
$329m |
|
|
|
Opening RAB |
$975m |
$966m |
|
|
|
Post-tax nominal WACC |
6.62%* |
5.22% |
|
|
|
Depreciation |
$145m |
$132m |
|
|
|
Smoothed revenue |
$928m |
$759m |
|
|
* Noted as a placeholder.
Pipes & Wires will comment
further once Power & Water submit their Revised Proposal.
Merger & acquisitions
Aus – CKI gets ACCC approval for APA acquisition
Introduction
Pipes
& Wires #177 and #179 examined CK
Infrastructure’s bid
for the APA
Group. This
article examines two significant recent events.
Quick recap of the deal
CK Infrastructure’s launched
its’ A$13b bid for APA which would create an enlarged CK Infrastructure that will have
electricity distribution, gas distribution or gas transmission assets in all
jurisdictions except Tasmania. In mid-August 2018, APA’s board recommended that
shareholders accept the $13b bid, which at that time was still subject to
regulatory approval.
ACCC approval
The ACCC approved the bid in
mid-September 2018. This included a court-enforceable undertaking from CKI that
it would sell the APA pipelines in Western Australia to maintain competition in
the gas transmission pipeline market because it (CKI) already owns a stake in
the Dampier – Bunbury pipeline.
National security concerns
The Foreign Investment Review
Board’s (FIRB) concerns have focused on the national security issues that would
result from the bid, in particular that about 70% of Australia’s critical
energy infrastructure would be controlled by entities that in turn could be
controlled or influenced by the Chinese Government. The FIRB’s rejection of CKI
and State Grid Corporation’s bid for Ausgrid is claimed to provide a strong
precedent for also rejecting the APA bid.
Liberal MP Craig Kelly has
suggested that CKI’s bid might be more acceptable if targeted a lesser stake in
APA, proposed to on-sell some APA assets or committed to future investment
(possibly hinting at a major trans-continental pipeline through his comment
“all that gas is actually on the wrong side of the continent”).
Pipes & Wires will comment
further as the various government agencies consider the political suitability
of CKI’s bid.
US – update on the Dominion – SCANA merger
Introduction
Pipes
& Wires #173 and #175 examined Dominion Energy and SCANA’s all stock merger, and noted
that various legislative and regulatory manoeuvers in North Carolina and South
Carolina threatened to gazzump the merger. This article picks up the story
again following recent regulatory agreements that are allowing further progress
on the merger.
Approvals to date
The merger has previously
received approvals from the Federal Energy Regulatory Commission (FERC), the
Federal Trade Commission (FTC), the Nuclear Regulatory Commission (NRC) and the
Georgia Public Service Commission.
Recent manoeuvers
The following recent manoeuvers
are noted…
· A settlement
with the North Carolina Utilities Commission to refund $3.75m to customers, refrain from filing a rate
increase until 1st April 2021, and increase charitable
contributions.
· A series of public meetings and regulatory hearings in South
Carolina to discuss SCE&G’s proposed rate increase that would include
continuation of the nuclear surcharge to pay for the failed VC Summer nuclear
plant.
· The possibility that the Base
Load Review Act could
be deemed unconstitutional, which could allow the South Carolina Public Service
Commission to require South Carolina Electric & Gas (SCANA) to refund its
customers about $2b for the failed VC Summer plant. Close sources indicate the
responsible Judge is expected to overturn the Act.
Pipes & Wires will comment
as the final approvals (or otherwise emerge from the North Carolina Utilities
Commission and the South Carolina Public Service Commission), and also on the
critical issue of the Base Load Review Act.
Energy mix and grid security
Aus – more grid interconnection
Introduction
Wider geographical interconnection of grids seems to
be one of the underpinning requirements of making wind and solar work …
capturing increased geographical diversity. This article examines the proposed
Trans-Australian HVDC Interconnector that will run pretty much from Brisbane to
Adelaide (this proposal seems to have been around for at least 2 years, so
maybe it’s not new but it is technically fascinating regardless).
The NEM interconnections
Australia’s national electricity market (NEM) interconnects 5 historically separate transmission grids (Queensland, New South Wales, Victoria, South Australia, and Tasmania
via the Basslink cable). It is about 5,000km long, and some of the
interconnections have fairly low capacity ratings.
The proposed HVDC interconnection
Two options have been
considered…
· A direct route of about 1,400km that cuts across northern NSW.
· A strategic route of about 1,600km through the southern parts of
Queensland and eastern South Australia which includes areas of undeveloped
wind, solar, geothermal and gas resources.
Costs are estimated at about $1.42b for the direct
route and about $1.40b for the strategic route. The strategic route is expected
to cost less because low-cost tower designs can be used, and because fewer
easements would be required.
The technical features of the HVDC interconnection
Some of the technical features include…
· An expected rating of 700MW at +350kV (best practice suggests
that +500kV would be uneconomic unless the rating was closer to 1,200MW).
· The possibility of using guyed chainette towers in remote areas.
· The use of HVDC-VSC (voltage source
converter) technologies.
So … an interesting and technically fascinating
project.
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.
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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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