Pipes & Wires

Though leadership of critical energy & infrastructure matters

Issue 181 – November 2018


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




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




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




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




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




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…




Draft Determination

Revised Proposal

Final Determination











Opening RAB





Post-tax nominal WACC










Smoothed revenue






* 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




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




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




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.


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.


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