Pipes & Wires

Though leadership of critical energy & infrastructure matters

Issue 183 – January 2019


From the editor’s desk…


Welcome to Pipes & Wires #183 … hopefully those in the southern hemisphere have had a decent break and kept cool (and those in the northern hemisphere have managed to stay warm). We start this issue by examining the prohibition on distributors owning batteries in Europe and the pruning of an EV charger roll-out in the US. We then examine some network access decisions in NZ and Australia, and then examine progress on two mergers in the US. This issue closes with a look at security of supply margins in the US in preparation for the northern summer.


So … until next month, happy reading…


What we’re seeing…


·     Mounting concern over the structural integrity of many hydro dams, including the ability to fully de-water.


·     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…


·     Development of an asset management journey aligned to ISO 55001 for two electric distribution companies.


·     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.


·     Developing a risk-based tree trimming strategy.


·     Developing an EV charging strategy.


·     Developing a best-practice guideline for smart metering.


Subscribe to Pipes & Wires


If you’re receiving this second-hand, pick this link to subscribe.


Regulating emerging technologies


Europe – prohibiting distributors from owning batteries




Which electricity market participants can and can’t own or operate batteries was one of the hot issues of 2018, and shows no signs of cooling off. This article examines the EU prohibition on distributors from owning or operating batteries, and then quickly summaries the various policies on ownership preferences and prohibitions from recent PW articles.


Background and regulatory framework


Battery storage is increasingly viewed as a critical aspect of decarbonisation, decentralisation of energy supply, improving customer choices, increased transparency of costs and reducing network costs. Accordingly, in November 2016 the EU updated its energy policy framework which has emerged as the Clean Energy For All Europeans package.


The prohibition on owning storage


Early indications from June 2018 were that transmission grid owners would be prohibited from owning, managing or operating energy storage facilities (not just batteries), and from controlling assets that provide ancillary services, and that similar prohibitions may also apply to distribution system operators. Article 36 of the draft Clean Energy Package Directive sets out the following…


·     Distributors shall not be allowed to own, develop, manage or operate energy storage facilities.


·     Member countries may allow distributors to own, develop, manage or operate energy storage facilities only if (i) no other parties offer to provide energy storage following a transparent tendering procedure, (ii) such facilities are necessary for the distributor to fulfil its obligations, and (iii) the regulator has assessed the necessity for it, and has granted approval.


Battery ownership around the world


Some of the emerging preferences and prohibitions on battery ownership around the world are as follows…



Preference / prohibition


Strong preference for prohibiting distributors from owning batteries unless demonstrably necessary for system operation.


ERCOT (Texas)

Possibly that transmission and distribution companies could be allowed to own batteries as an alternative to grid investment, but be prohibited from participating in the energy market.


NEM (Australia)

Possible that grid security plans will allow networks to contract with batteries to provide FCAS (frequency control ancillary services).



Proposed to amend electricity distribution licenses to prohibit operation of storage.



Not clear, arguments from energy retailers that distributors shouldn’t be allowed to own batteries, with counter-arguments that batteries could usefully avoid or defer network investment but should have to be owned by third parties.



US – Maryland prunes EV charging program




Many US states have adopted bold EV goals that have a consequential EV charger roll-out requirement. This article examines a recent decision by the Maryland Public Service Commission to significantly prune the proposed roll-out of 24,000 chargers, and tries to reconcile that decision with Maryland’s goals.


Maryland’s public policy goals


In 2013 Maryland committed to the following ambitious EV goals…


·     60,000 EV’s by 2020.


·     300,000 EV’s by 2025.


These targets represent a significant step-up from Maryland’s 10,000 EV’s and 1,200 chargers at the end of 2017.


The proposed EV charger program


A proposed 5 year roll-out of 24,000 chargers by BG&E, Delmarva Power & Light, Potomac Edison and PEPCO has been under consideration by the PSC for most of 2018. A key feature of the filing was the conclusion that the benefits to the state would outweigh the $104m cost to customers, which were estimated to be between $0.25 and $0.42 per month respectively for customers of each of the 4 electric companies.


The PSC’s decision


In January 2019 the PSC approved the installation of 5,000 chargers, significantly short of the 24,000 proposed. Key features of that decision include…


·     The PSC believed it is in the public interest to approve a limited EV charging program at a reduced cost to customers, but which will provide valuable insights (Editor’s note – the proposed $0.25 to $0.42 per month tariff increase is yet to be recalculated).


·     An extensive discourse on whether Maryland law gives the PSC jurisdiction over all aspects of the proposal, on the basis that the Maryland Public Utilities Act purportedly excludes EV charging from regulation (The PSC concluded that it does have jurisdiction).


·     The PSC notes their statutory role of balancing electric reliability, costs, customer impact and state policy goals.


·     An economic study estimated an NPV of annualized benefits of $230 per charger by 2030. This was supported by the electric companies own analyses, of which inter alia BG&E estimated that if 300,000 EV’s is achieved by 2025 the additional distribution revenue will exceed the proposed additional customer monthly charge by about 2x, with PEPCO claiming 3x.


Reconciling the PUC decision with state policy


Such a significant pruning of this proposal might seem inconsistent with state policy, however it is important to note the PSC is required to balance a wide range of potentially competing and conflicting goals, including customer price impact. So it would seem that the PSC has given significant weight to the price aspect of its decision.


Long-time readers might recall from PW #93 that the Maryland PSC also rejected BG&E’s smart meter program on the basis that the “proposal asks BG&E's ratepayers to take significant financial and technological risks and adapt to categorical changes in rate design, all in exchange for savings that are largely indirect, highly contingent and a long way off".


Network regulatory decisions


NZ – setting the next Transpower price-quality path




Transpower recently submitted its final proposal (rate case) that will apply for the RCP3 control period commencing on 1st April 2020. This article examines the key features of that proposal along with the independent verifiers report.


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 decisions


Key features of the RCP3 decisions to date include…




RCP3 draft proposal

RCP3 final proposal

RCP3 final decision

















The independent verifiers’ conclusions


The role of the independent verifier is to provide independent assurance to the Commission that the applicant’s proposal meets the expenditure outcome test (which is a slight variation to the expenditure objective test that customised price-quality path (CPP) applications are assessed against). The independent verifiers’ conclusions include…


Spend category


Percent subject to verification

Verifiers’ conclusion

Base CapEx


86% ($1,036m)

100% (of the 86% subject to verification) satisfied the criteria for Good Electricity Industry Practice.



100% ($1,343m)

Approximately 92% of the OpEx satisfied the criteria for Good Electricity Industry Practice.


Next steps


Pipes & Wires will pick up this story again once the Commission publishes its final decision.


Aus – Final Decision from the ROR review




Pipes & Wires #178 examined the Australian Energy Regulator’s (AER) Draft Guidelines for the allowable rate of return (ROR). This article examines the AER’s Final Decision that was released just before Christmas 2018.


Regulatory framework


The ROR Guidelines reference the National Electricity Rules and the National Gas Rules.


Comparing the key features of the Draft and Final Decisions


The key features of the Draft and Final Decisions are compared below…


Draft Decision

Final Decision

Specified how the allowed ROR must be calculated.


Specified how the allowed ROR must be calculated, including a gearing ratio of 0.6.


Specified how the ROE must be calculated, including an equity beta of 0.6.


Specified how the ROE must be calculated, confirmed an equity beta of 0.6.


Specified how the risk-free ROR must be calculated based on 10 year government bonds.


Specified the risk-free ROR as the simple average of the daily 10 year yield to maturity of Commonwealth Government Securities converted to an effective annual rate.


Specifying the value of imputation credits as 0.5.


Amended the value of imputation credits to 0.585.



Aus - the Northern Territory electricity distribution revenue reset




The electricity distributor in the Northern Territory, the Power & Water Corporation, recently submitted its Revised Proposal (rate case) for the 5 year period commencing on 1st July 2019. This article examines the key features of that Revised Proposal.


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 the AER publishes its Final Determination.


Merger & acquisitions


US – update on the Dominion – SCANA merger




Pipes & Wires #173, #175 and #181 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 notes the approval from the South Carolina Public Service Commission (SCPSC), effectively clearing the way for the merger to proceed.


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), the Georgia Public Service Commission, and the North Carolina Utilities Commission.


The proposed price cut


Dominion also submitted an updated proposal to the SCPSC that would reduce South Carolina Electric & Gas’ prices by about $22 per month, or about 15%. This is a long way short of the 33% that customer advocates were wanting.


The SCPSC approval


The long-awaited approval from the South Carolina Public Service Commission was obtained in mid-December 2018, however Dominion said it wait for the final order to be published before closing the deal.


Settling the Summer class action suit


SCANA has also reached a settlement in the class action suit that sought a $2b refund to SCG&E customers over the abandoned VC Summer nuclear plant. This will inter alia provide $2b of future price cuts.


Next steps


Pipes & Wires will comment further as the final order emerges from the South Carolina Public Service Commission.


US / Canada – progress on Hydro One’s bid for Avista




Pipes & Wires #175 introduced Hydro One’s proposed acquisition of Avista. This article recaps the proposed deal and notes various recent regulatory and political decisions.


Recapping the proposed deal


Hydro One will pay US$53 for each Avista share in all-cash deal, which valued Avista at US$5.3b. In addition to the usual regulatory approvals that include a commitment not to increase the acquired company’s prices, this deal also includes an agreement between the various owners of the 2,094 MW Colstrip coal-fired station in Montana and the various Washington (state) authorities to accelerate the closure of Colstrip.


The regulatory denial


In early December 2018 the Washington Utilities & Transportation Commission (WUTC) denied Hydro One’s bid as it became apparent that Hydro One may not be the passive investor it claimed to be.


The background to the WUTC’s decision was the intervention of newly elected Ontario Premier Doug Ford who called for the resignation of Hydro One’s directors and the retirement of the its’ chief executive. Ontario subsequently passed legislation that (i) calls for a 12% reduction in Hydro One’s prices, and (ii) gives the Ontario government a direct role in setting executive salaries. The WUTC concluded that such political intervention could directly or indirectly harm Avista customers, and stated that they had no confidence that Hydro One would defend Avista on the face of interference from the Province.


Hydro One and Avista’s request for reconsideration


In mid-December 2018, both Hydro One and Avista asked the WUTC to reconsider its denial, on the basis that the WUTC misapprehended the political risk to Avista’s customers. For its part, Hydro One and Avista note that the deal includes a commitment of US$42m in customer benefits and a further US$29m in charitable commitments.


Next steps


Pipes & Wires will comment further as the WUTC considers Hydro One and Avista’s request for reconsideration.


The wider issue of foreign ownership and public interest


The WUTC’s decision reflects a trend of governments and regulators becoming increasingly nervous about foreign ownership (and potentially control) of essential infrastructure, as Pipes & Wires #182 noted the Australian government’s veto of CK Infrastructure’s bid for the APA Group.


Energy mix and grid security


US – keeping cool in the Lone Star State




Pipes & Wires #177 examined how the Electric Reliability Council of Texas was coping with the 2018 summer peaks, and noted a steady decline in forecast reserve capacity margin that depended on over 4,400 MW of new (secure) generation being commissioned out to 2023 to restore that margin to historical levels. This article examines ERCOT’s recently released Capacity, Demand & Reserves (CD&R) Report which seems to tell an even more concerning story.


Key features of the December 2018 CD&R Report


Key features of the December 2018 CD&R Report include…


·     Summer peak demand forecasts that are significantly higher than the May 2018 CD&R forecasts, out to a difference of 1,700 MW by 2023.


·     Approval of 1,714 MW of generation by ERCOT since the May 2018 CR&R Report.


·     Cancellation of 1,763 MW of gas-fired generation and 1,069 MW of wind generation.


·     A further 2,845 MW of gas-fired, wind and solar generation being delayed.


Further reading of the December 2018 CD&R Report reveals that meeting forecast demand from 2021 onwards depends on planned generation actually being commercially available.


Comparing the May 2018 and December 2018 CD&R forecasts


The following comparison of forecast capacity, demand and available reserve from the May and December 2018 CD&R Reports indicates an overall decline in available reserve out to 2023.








Forecast capacity May 2018






Forecast demand May 2018






Available reserve May 2018






Forecast capacity December 2018






Forecast demand December 2018






Available reserve December 2018







Pipes & Wires will pick this story up again in mid-2019 when the May 2019 CD&R Report is published.


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.


·     Episode #3 – The People Want More.


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


Opt out from Pipes & Wires


Pick this link to opt out from Pipes & Wires. Please ensure that you send from the email address we send Pipes & Wires to.




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.