Pipes & Wires

Though leadership of critical energy & infrastructure matters

Issue 188 – June 2019


From the editor’s desk…


Welcome to Pipes & Wires #188. This issue has a heavy New Zealand content, beginning with 3 regulatory decisions and a look at the developing regulatory framework for contestable services. In amongst that we examine the final decisions for the 3 electricity distributors in the Australian state of NSW.


We then look at how emerging technologies are being regulated in the United States, and conclude this issue with a look at the future of gas turbine peakers. So … until next month, happy reading…


What we’re seeing…



Energy mix & grid security

·  Legal moves challenging the treatment of forest bio-mass as renewable.

·  Heightened anxiety to get the carbon price more precisely determined to unleash the next wave of decarbonisation investment.

·  Diverging and seemingly inconsistent views on the role of coal for dry-year security (less frequent, but more critical).

·  Emerging battle between storing solar, or over-building and curtailing

·  Charging EV’s with solar during the day, and then use them to flatten the peaks.

·  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.

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


General stuff

·  A potential decoupling of electricity prices from gas prices.

·  A possible need for a managed market to strengthen certainty of gas supply.

·  The possibility of gas becoming industry’s transition fuel away from coal.

·  More investment signals moving faster and in different directions.

·  Increasing political awareness of the need for a smooth transition that will minimise price shocks.

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

·  Heightening concern around foreign ownership of essential infrastructure.

·  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).

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


Regulating emerging technologies

·  Policy makers exhibiting specific technologies biases, particularly between batteries and gas turbines.

·  A possibly diminished role for gas turbines as grid peaks are de-layered to allow more insightful use of batteries.

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


Network access and price regulation

·  Increasing regulatory rejection of grid modernization, EV charger and smart meter proposals.

·  What seems like regulatory push-back against the large transmission lines required to interconnect wind-farms.

·  A possible step change in direction from the previous trend of regulators squeezing fixed monthly charges to legislation specifically allowing solar tariffs.

·  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.

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




Subscribe to Pipes & Wires


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


Network regulatory decisions


NZ – setting the next electricity distribution default price path




The Commerce Commission recently released its draft default price-quality (DPP) decisions that will apply to all non-exempt EDB’s (that are not subject to a CPP) for the 5 year control period beginning on 1st April 2020 (DPP3). This article examines the key features of those draft decisions to set some context for the Commission’s final decision in late 2019.


Regulatory framework


Subpart 6 of Part 4 of the Commerce Act 1986 sets out the regulatory framework for default price-quality regulation in general, whilst Subpart 9 sets out specific provisions for EDB’s.


Key features of the draft decision


Key features of the draft decision include…


·     An average reduction in Year 1 revenue of 4.6%, down to $1.04b across the industry (ranging from a 9% increase for Aurora to a 34% reduction for Centralines).


·     A WACC of 5.13% (subject to confirmation in October 2019), down from 7.19%.


·     The same core components as DPP2, but with some refinements aimed at increasing certainty.


·     A revenue cap (as distinct from a price cap).


·     Treating planned and unplanned interruptions separately.


·     A national average 5% increase in CapEx from DPP2 (but less than the CapEx forecast in the March 2018 asset management plans).


Next steps


The Commission will receive submissions on the draft decisions until 18th July 2019, and expects to release its final decisions on 28th November 2019.


NZ – setting the next Transpower price-quality path




The Commerce Commission recently published its draft decision for the RCP3 control period that will apply to Transpower for the 5 year period commencing on 1st April 2020. This article examines the key features of that draft decision to set further context for examining the final decision.


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 draft decision

RCP3 final decision




















Next steps


Pipes & Wires will pick up this story again once the Commission publishes its final decision in late 2019.


Aus – the final NSW electricity distribution revenue decisions




The Australian Energy Regulator recently released its Final Determinations that will apply to the 3 electricity distributors in the Australian state of NSW (Ausgrid, Endeavour Energy and Essential Energy) for the 5 year period commencing on 1st July 2019. This article examines the key features of those Final Determinations.


Regulatory framework


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


Ausgrid - key features of the revenue reset process


Key features of the process to date include…




Draft Determination

Revised Proposal

Final Determination











Opening RAB















Smoothed revenue






Endeavour Energy - key features of the revenue reset process


Key features of the process to date include…




Draft Determination

Revised Proposal

Final Determination











Opening RAB















Smoothed revenue






Essential Energy - key features of the revenue reset process


Key features of the process to date include…




Draft Determination

Revised Proposal

Final Determination











Opening RAB















Smoothed revenue






Pipes & Wires will revisit this story when the AER publishes its Final Determinations.


NZ – setting the WACC for electricity and Wellington airport




The Commerce Commission recently released its cost of capital decisions for the year ending 31st March 2020 for…


·     Electricity distribution businesses.


·     Wellington Airport.


This article examines the key features of that determination.


Regulatory frameworks


The regulatory frameworks are set out in…


·     Clauses 2.4.1 to 2.4.7 of the Electricity Distribution Services Input Methodologies Determination 2012, and


·     Clauses 5.1 to 5.7 of the Commerce Act (Specified Airports Services Input Methodologies) Determination 2010.


Key features of WACC’s


Key features of the electricity distribution WACC’s include…



25th percentile


67th percentile

75th percentile

Vanilla WACC





Post-tax WACC






Key features of the Wellington Airport WACC’s include…




Vanilla WACC


Post-tax WACC



Regulating emerging technologies


NZ – developing a regulatory framework for contestable services




Regulators seem to be trying different approaches to regulating emerging technologies. This article examines a recently announced joint work program by New Zealand’s two electricity regulators (the Commerce Commission and the Electricity Authority).


The joint work program


The headline of the media statement notes that distributors are increasingly participating in markets for contestable services, and that the purpose of the work program is to examine whether that participation is benefitting customers or hindering competition.


A key theme from the selection of submissions examined is that emerging technologies…


·     Tend to be an inherent component of the distribution network, both at an asset level and at a real-time operational level.


·     Are likely to deliver the most benefits to the distribution segment of the supply chain, most likely through avoiding new capacity investments.


The terms of reference set out the expectation that a research paper will be published. This paper will develop a framework for identifying and assessing the costs and benefits of distributors providing contestable services, and is expected to include case studies.


The editor comments


Competitive provision of emerging technologies is a hot topic, with a wide range of regulatory views emerging that includes the extreme proposal in the EU to prohibit distributors from owning batteries. So just how sound is the argument that distributor participation might hinder competition ? Consider the following…


·     Back in the 1950’s control of hot water cylinders was an emerging technology. Distributors installed it, and distribution customers benefited hugely. Admittedly we didn’t have competitive markets for electricity service back then, but are we worse off because an emerging technology was rolled out by a distributor ?


·     Most of the EV chargers I’ve seen around New Zealand proudly display the distributors’ name. It would seem unlikely that we are worse off because distributors have rolled out those chargers rather than other electricity supply chain participants.


While these are only 2 examples (each of which have their own limitations) it should prompt careful thought that in most cases emerging technologies are an inseparable part of the distribution network, which makes distribution a logical owner or at least operator of those technologies.


US – legalising solar connection charges




Establishing fixed charges for rooftop solar seems to be one of the many battlegrounds in the emerging technologies and renewable energy spaces. This article examines legislation in the US state of Iowa that would allow electric companies to charge additional tariffs.


Senate File 583


Key features of Senate File 583 include…


·     A specific recognition that electric tariffs are traditionally designed for the provision of full electric service to customers, not taking into account the private generation of electricity.


·     The intent of the state parliament to require customers who use specified classes of private generation to pay their share of the costs of the electric company’s network.


·     Provision for price-regulated electric companies to request the Iowa Utilities Board’s approval of tariffs to specific customers who use those specified classes of private generation.


·     Such tariffs shall recover the electric company’s actual costs.


Senate File 583 passed the Senate with a vote of 28 to 19 in mid-March 2019, however the parallel House Study Bill 185 stalled.


What are the various parties claiming ?


Here’s a sample of what are the various parties are thinking...


·     Electric companies support the legislation, claiming that growth is possible when all customers benefit from renewable energy.


·     Senators seem divided along party lines.


·     Renewable energy advocates understandably oppose the legislation.


Pipes & Wires will pick up this story again as House Study Bill 185 progresses.


US – clarifying the definitions around EV recharging




A key theme of recent Pipes & Wires articles has been the widening legislative interpretation gap around whether EV recharging is a “service” or whether it is “energy sales”. This article examines proposed rule changes in several more US states aimed at clarifying the definition.


Further state-by-state clarifications


This article augments the table from Pipes & Wires #187 with recent updates from Wisconsin and Montana…



Pertinent legal bits

Pipes & Wires ref.


·   Wisconsin Public Service Commission has begun a public investigation into a range of issues, including…

·   What limitation should be placed on ownership of public EV chargers ?

·   How might public ownership impact on access and prices ?

·   What is the proper role of electric companies in deploying EV chargers ?

·   Pipes & Wires will comment once the PSC’s investigations are completed.




·   House Bill 456 provides that…

·   A public utility may provide electric service to an EV charger at prices approved by the PSC that enable full cost recovery without subsidy.

·   Entities operating EV charges are not public utilities.

·   The Bill passed the Senate with a vote of 30 to 19 in early April 2019, and was passed by Governor Steve Bullock on 10th May 2019.




·  Iowa Utilities Board (IUB) files notice in February 2019 to amend Chapter 199-20 of the Iowa Administrative Code, with the Intent of remove EV charging stations from the definition of public utility under Iowa Code 476.1 and 476.25.

·   The amendment states that “electric energy sold for the purpose of electric vehicle charging at a commercial or public electric vehicle charging station constitutes neither the furnishing of electricity to the public nor the resale of electric service”.

·   The amendment goes on to state that “if the electricity used for electric vehicle charging is obtained from a rate-regulated public utility, the terms and conditions of the service to the electric vehicle charging station shall be governed by and subject to the utility’s filed tariff”.

·   The IUB issued an order in late April 2019 that EV chargers are not considered public utilities.




·   Pennsylvania Public Utilities Commission (PUC) approved tariff supplements for MetEd, PennElec, Pennsylvania Power and West Penn Power (all First Energy subsidiaries) to specify that…

·      Charging at a charger owned by a third-party will not be considered resale of electricity.

·      Such chargers will be excluded from the pricing requirements of Pennsylvania’s Utilities Code.




·   Whether EV charging is a service, or the supply of electricity

·   This in turn determines whether an EV charger falls within the definition of electric plant, which in turn brings it within the jurisdiction of the state regulator

·   Whether EV chargers can be included in the rate base.

·   Whether EV charging tariffs can be regulated by the state.

·   Regulator ruled that operating EV chargers is fundamentally different from operating an electric company, and that electric companies cannot offer EV charging as a regulated service which would inter alia enable them to recover the cost from all customer through the rate base (which was overturned by a court ruling).


#180, #181


·   Regulator recommended that the capital cost of EV chargers should be excluded from the rate base.

·   Regulator recommended that the cost of residential EV charger rebates should be treated as a regulated asset.




·   Regulator concluded inter alia that the capital cost of EV chargers should not fall on KCPL’s customers.




Energy mix and grid security


US – what future hath gas turbines ?




Over the last 15 months Pipes & Wires has examined gas turbines, mainly in the same breath as batteries and peak chopping. This article trawls those articles to see what trends and patterns are emerging.


The articles


The following articles are considered…


·     PW #174 – requiring competitive purchase of DER’s.


·     PW #174 – gas-fired peaking v’s gas-fired moratorium.


·     PW #175 – will batteries displace gas turbines for peaking ?


·     PW #177 – replacing gas turbines with batteries.


·     PW #184 – batteries versus gas turbines.


·     PW #187 – setting an end date for gas turbines ?


·     Indiana URC’s rejection of Vectren’s proposed 850 MW of gas turbines in preference to DER’s that are also expected to cost less.


The trends and patterns


The following trends and patterns have been identified and clustered into themes…


Promoting competition

·  Competitive purchase of services (as distinct from simply installing gas turbines).


Reducing costs

·  Demonstrating that turbines are the least cost option.

·  Forecast gas supply constraints may increase the cost of gas turbines by about 2023.


Asset stranding

·  Regulatory concern that gas turbines will be stranded by lower cost DER’s.


Technology preferences

·  Deliberate preference against gas turbines.

·  Recognition that gas turbine technologies are improving, so shorter contract durations avoids locking in old technologies.


Security of supply

·  Recognition that gas turbines provide longer duration grid security than batteries.


Emission reduction

·  Batteries may help achieve emission reduction targets (which overlooks the generation of the initial electricity).


Grid operation

·  Peaks are being de-layered to match battery characteristics.

·  Still some hesitancy to rely on batteries.



So it would appear that the major trends and patterns are…


·     Regulatory pressure in several directions, including requiring peaking capacity to be competitively purchased, fears of stranding, and a distinct bias against gas turbines.


·     Some thoughtful de-layering of peaks to better understand how batteries might help.


·     Caution by some electric companies until experience with batteries accumulates.


Recent client projects


Recent client projects include…


·     Identifying best customer engagement practices on behalf of an Australian distributor.


·     Development of an asset management journey aligned to ISO 55001.


·     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.


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.


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.