Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #198. Key themes in this issue include…
· An emerging view that solar tariffs are
discriminatory.
· Increased need for rate cases to
demonstrate customer benefits.
· That new wholesale electricity market
mechanisms will be need to better integrate variable renewables.
So …
until next month, happy reading…
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Cool multimedia stuff
Building
the national grid (1956)
This 2˝
minute video examines the
building of Britain’s national grid (presumably the 275kV grid) near
Basingstoke, with an obvious lack of PPE.
Regulating
emerging technologies
US –
ruling against rooftop solar demand tariffs
Introduction
A recent theme of Pipes & Wires has
been the diverging views on whether separate tariffs for rooftop solar are fair
and, indeed, lawful. This article examines what may prove to be a seminal Court
ruling in the US state of Kansas in favor of rooftop solar, and appears to be a
leaning against allowing additional tariffs for rooftop solar customers.
The core
of the argument
The core of the argument is whether the
reduced nett kWh consumption and hence revenue from a rooftop solar customer in
a traditional kWh-based tariff structure justifies a demand tariff to ensure
that solar customers pay their fair share of the distribution network’s costs,
viz…
· Rooftop
solar advocates claim that including a demand tariff creates an entry barrier
(which I don’t think electric companies deny), and is therefore unjustified.
· Electric
companies claim that the reduced nett kWh consumption
by rooftop solar customers mean they are not paying their fair share of the
network costs, requiring a subsidy from non-solar customers.
Evergy’s
proposed rooftop solar demand tariff
Evergy is the merged Westar Energy and
Great Plains Energy (Kansas City Power & Light), which supplies about
1,000,000 electric customers in the eastern half of Kansas and in western
Missouri.
Back in October 2018 Evergy began charging
a solar demand tariff of $3 per kW during winter, and $9 per kW during summer on
all rooftop solar installed after October 2015 with the agreement of the Kansas
Corporation Commission (KCC). In 2019 Evergy agreed to repeal the solar demand
charge for all installations up to October 2018.
Court
ruling on Evergy’s proposed tariff
The approximate sequence of events is…
· October
2018 – Evergy introduces a solar demand tariff on all rooftop solar installed
after October 2015.
· April
2019 – Kansas Court Of Appeals upheld Evergy’s solar demand tariff.
· July
2019 – Evergy agrees to repeal the solar demand tariff on all rooftop solar
installed before October 2018.
· April
2020 – Kansas
Supreme Court rules that Evergy’s solar demand tariff is discriminatory, and
therefore illegal. This decision reverses the previous decisions of the KCC and
the Court Of Appeals, and remanded Evergy to work with the KCC to develop a
non-discriminatory tariff.
Key
features of the Supreme Court ruling
Key features of the Supreme Court ruling
include…
· That the
solar demand tariff is discriminatory, and is clearly different from the
time-of-use or minimum bill tariffs quite clearly allowed under Kansas law.
· That
electric companies can still alter the tariffs applying to rooftop solar
customers, but it must be within a wider non-discriminatory context.
· That the
KCC improperly approved Evergy’s original tariff application.
Pipes & Wires will continue examining
this critical component of renewable energy as significant regulatory decisions
and court rulings emerge.
Network regulatory decisions
NZ – setting the WACC for electricity and
airports
Introduction
The Commerce Commission recently released its cost of capital
decisions for the disclosure year commencing on 1st
April 2020 for electricity distribution businesses and for Wellington Airport. This article examines the key features of
those decisions.
Regulatory frameworks
The regulatory frameworks are set out in…
· Clauses 2.4.1 to 2.4.9
of the Electricity
Distribution Services Input Methodologies Determination 2012 (consolidated to 31st
January 2019).
· 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 WACC’s include…
|
|
25th percentile |
Mid-point |
67th percentile |
75th percentile |
|
|
EDB’s |
Vanilla WACC |
3.37% |
4.05% |
4.49% |
4.73% |
|
Post-tax WACC |
3.04% |
3.72% |
4.16% |
4.40% |
|
|
Wellington Airport |
Vanilla WACC |
|
5.26% |
|
|
|
Post-tax WACC |
|
5.13% |
|
|
|
US – resubmitting
a rejected smart metering rate case
Introduction
Pipes
& Wires #197 examined the
Virginia State Corporation Commission’s rejection of several components of
Dominion Energy’s grid transformation rate case. This article examines Dominion’s
resubmitted rate case.
Summary
of the SCC rejection
Phase 1B of Dominion’s rate case sought
$837.8m of cost recovery, which Dominion believed was reasonably required to
meet its obligations under the Grid Transformation and Security Act. The SCC
approved only $212m,
arguing in several instances that reasonableness and prudency had not been
demonstrated. In particular, $303.8m of advanced metering infrastructure (AMI)
cost recovery was rejected based on the testimony of several expert witnesses
that AMI provided few if any benefits unless accompanied
by plans for smarter tariff design, energy efficiency, demand response and
integration of DER’s (distributed energy resources).
Dominion’s
resubmission
The SCC invited Dominion to resubmit
its rate case, which it did in
mid-April 2020. In addition to arguing that the SCC’s rejection of AMI and
self-healing networks as not reasonable or prudent was contrary to the evidence
presented in Dominion’s rate case, Dominion also argued that the rejection was
contrary to the objectives, principles and requirements set out in…
· Grid
Transformation and Security Act 2018.
· Senate
Bill 1769 (nett metering).
The
SCC’s decision on Dominion’s resubmission
In late April 2020 the SCC
rejected Dominion’s resubmission inter alia on the basis that the
proposed customer benefits of the AMI were based on estimates from other states
(which the SCC went further to state were speculative and uncertain), and not
on a specific program design.
The
editor comments
It would seem that electric companies are
in the difficult position of having to meet legislative obligations on the one
hand whilst also meeting regulators expectations of customer value on the other
hand. What is clear is that grid transformation rate cases will need to be
accompanied by a wider array of programs demonstrating customer value.
South
Africa – Eskom recovers additional revenue
Introduction
Pipes
& Wires #197 examined Eskom’s
appeal to the High Court for relief from the MYPD4 revenue decision. As a
slight side-line to the excitement of that appeal, this article notes NERSA’s
decision to allow Eskom to recover an additional R13.3b for the 2018/19 year.
Recapping
the MYPD4 decision
Readers may recall that the MYPD4 revenue
decision reduced Eskom’s proposed revenue for the 3 years starting on 1st
April 2019 from R763b to R661b.
NERSA’s
decision
Eskom’s regulatory framework includes a
Regulatory Clearing Account (RCA) which is essentially an ex-post wash-up of
either over-recovery or under-recovery of costs due to variances from the
starting assumptions. Eskom sought an additional R27.3b of revenue for the
2018/19 year (the last year of MYPD3) due to more-than-budgeted running of open
cycle gas turbines, increased employee benefits and lower-than-budgeted kWh sales.
NERSA has approved R13.3b of additional revenue, and will publish its reasons
in due course.
Technologies and techniques
Global – the emergence of transactive distribution networks
Introduction
Most of us are pretty comfortable with the
how energy, information and money flows around the high voltage transmission
grid (those who have done my Electricity Industry training course should
anyway) which I guess we could call transactive transmission networks. This
article examines transactive distribution networks as one of the next frontiers.
What
exactly is a transactive distribution network ?
Essentially a transactive distribution
network is a network whose primary role is interconnection rather than
connection. The characteristics will include…
|
Existing distribution network |
Transactive distribution network |
|
A few large, uni-directional power flows. |
Many small, multi-directional power
flows. |
|
Topology is centralized. |
Topology is decentralised. |
|
Few large generators supplying many
customers. |
Many small generators supplying many
small customers, including themselves. |
|
Many uni-directional financial
transactions. |
Many small, multi-directional financial
transactions. |
|
Many uni-directional information flows. |
Many small multi-directional information
flows. |
|
Makes most of its revenue from kWh-based
energy sales. |
Likely to make most of its revenue from
“network services”. |
|
Typically stops at the meter. |
Likely to extend beyond the meter. |
A few mental gymnastics should make the
parallels between existing transmission grids and wholesale markets, and a
transactive distribution network apparent. The role of solar and batteries in a
transactive distribution network should be obvious.
Key
steps toward transactive distribution networks
Some of the key steps towards a transactive
distribution network will include…
· A lot
more instrumentation and telemetry will be required at LV level, with the irony
being that LV has historically been given the least instrumentation, attention
and funding.
· Possible
re-conductoring if the LV has been tapered away from the transformer.
· Simplified
process for becoming a transactive participant.
· Probable
changes to the way distribution networks are regulated, particularly how costs
are recovered from traditional revenue on the basis of electricity line
services. Or dismantling of regulation as traditional networks face competition
and prices can be set by markets.
· Clarification
of exactly what a transactive business model will look like.
· Further
roll-out of distributed resources, or possibly just greater confidence that the
business model will enable full recovery of costs.
· Integration
of the real-time value of distributed services (including energy and peak kW
from solar and batteries) into the business model.
· Automation
of customers real-time value perceptions (customers aren’t going to
continuously watch a device to see when to start the dishwasher).
Energy mix and grid security
NZ – grid security forecasts
Introduction
Transpower recently released
its Security
Of Supply Annual Assessment 2020, setting out NZ’s medium-term supply and demand balance out to
2029. This article examines the key features of that Assessment which presents
3 outcomes…
· NZ winter energy margin (WEM).
· South Island winter energy margin.
· North Island winter capacity margin (WCM).
Scenarios examined
The 2020 Assessment considers 4
scenarios…
· Low Demand, with only modest growth of 1% in annual energy
consumption to 46,000 GWh by 2029.
· Medium Demand, in which transport and industrial heat
electrification accelerates at 1.8% per year leading to an annual energy
consumption of 50,000 GWh by 2029.
· High Demand, which models a more aggressive uptake of technologies
than the Medium scenario of 2.2% per year leading to an annual energy
consumption of 52,000 GWh by 2029.
· Thermal Constraint, based on the Medium Demand but with 500MW of
gas-fired generation removed.
All scenarios include the Tiwai
Point aluminum smelter remaining viable until 2030.
Security forecasts
The following table sets out
the key security forecasts…
|
Scenario |
NZ WEM – year in which GWh will fall below the 14% to 16% margin |
North Island WCM – year in which MW will fall below the 630MW to
780MW margin |
|
Low Demand |
Beyond 2029 |
2027 |
|
Medium Demand |
2028 |
2026 |
|
High Demand |
2027 |
2026 |
|
Thermal Constraint |
2028 |
2026 |
The modelling broadly suggests
that steady progress on new generation (including those already in the
development pipeline) will be required for capacity and energy security
standards to be met.
Aus –
integrating variable renewables
Introduction
Energy market and transmission grid
operators have increasing concerns about how grid security can be maintained as
the penetration of variable renewables increases. This article examines the key
features of the Australian
Energy Market Operator’s recently released Stage 1
of the Renewable Integration Study.
The
Study’s starting point
The starting point for the Stage 1 Study is
that the existing 17,000 MW of wind and solar in the National Electricity
Market (NEM) will increase to about 27,000 MW by 2025, with a corresponding
drop in grid inertia from 68,000 MWs to about 45,000 MWs by 2025. Modelling
includes instantaneous wind and solar penetrations of 75% for a Central
scenario and 100% for a Step Change scenario.
Key
recommendations of the Stage 1 Study
Key recommendations of the Stage 1 Study
include…
· Evaluating
the suitability of existing operating and dispatch methods.
· Redeveloping
existing scheduling systems to better account for inertia, system strength and
ramping requirements.
· Recognising
that new market mechanisms and payment methods may need to be introduced.
· Better
analysis of complex grid security problems.
· Developing
short duration voltage disturbance ride-though criteria for solar inverters.
· Submitting
rule changes to the AEMC to establish minimum technical standards for embedded
renewals.
· Establishing
real-time visibility of all embedded renewables over 100kW.
Next
steps
The AEMO is currently consulting with
industry stakeholders on the Stage 1 report. Pipes & Wires will comment
further once further reports are released.
Industry structural changes
US –
Pueblo rejects muni proposal
Introduction
Relinquishing supply from large,
investor-owned electric companies to form a municipal seems to be an emerging
trend. This article examines a recent proposal by the city of Pueblo, Colorado
to form a muni, and then examines some wider trends of other recent muni
proposals.
Pueblo’s
proposal
Pueblo is a
city of about 111,000 people in southern Colorado on I-25 between Denver and
Albuquerque, which takes its electric supply from Black Hills Energy under a
20 year franchise agreement that began in 2010 and which includes review
provisions in 2020 and again in 2025. Those review provisions provide Pueblo
with the opportunity to exit the franchise with a view to reducing electric
tariffs and facilitating Pueblo’s goal of having 100% renewable electricity by
2035.
Key features of Pueblo’s thinking to date
includes...
· The
electric system would be operated by Pueblo’s Board of Water Works.
· Conservatively
estimated price reductions of between 10% and 14%, including a 70% renewable
energy scenario estimated to cost $25 to $30 per customer less than the current
supply agreement.
· A hoped
for acquisition cost of around $900m to $1b.
For its’ part, Black Hills Energy claims
that supplying Pueblo as a muni will cost about $38m more per year than what it
currently costs Black Hills, which translates into price increases of about
$138 per year at the start to possibly $330 per year by 2040.
The
people vote
In a postal ballot in early May 2020 the
citizens of Pueblo firmly rejected Question 2A (“to leave Black Hills and form
a muni operated by the Board of Water Works”) by about 19,000 votes against and
only 5,900 votes for.
The
wider trends
Pipes & Wires has examined the
following 3 other muni proposals…
· Boulder
(Colorado), which proposes to relinquish supply from Xcel Energy (PW #195)
· Chicago,
which has studies relinquishing supply from Commonwealth Edison (PW #192)
· San
Francisco and San Jose, which both offered to purchase the respective
distribution and supply businesses from Pacific Gas & Electric (PW #193)
Common themes in each of these proposals
include offering electric customers a “fairer deal” (presumably lower prices)
and assisting renewable energy goals. So let’s examine this a bit closer in the
context of the 3 dimensions of the energy
trilemma…
· Emissions
– this tends to dominate the argument for establishing a muni, but also tends
to overlook the efforts that the incumbent electric company is making to
increase renewables.
· Price –
this tends to get squeezed into second place a bit, but arguably might have
jumped to first place in the Pueblo vote.
· Security
– this doesn’t get much attention at all, probably because it is not well
understood. The key risk here is that keeping the bold promises of tariff
reductions may lead to squeezing renewal expenditure, which ultimately reduces
supply reliability.
Pipes & Wires will examine further muni
proposals as they emerge.
Recent client projects
Recent
client projects include…
· Compiling a pricing model to reflect
asset investment levels to transmission grid exit level rather than averaged
over the entire network.
· Identifying best practices in
grid-scale and community-scale batteries for an Australian distributor.
· Identifying best practices in EV
charging on behalf of an Australian distributor.
· Recommending amendments to a security
of supply standard to better reflect demand density.
· 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.
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Disclaimer
These articles are of a general nature, they do not constitute 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
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