Pipes & Wires

Though leadership of critical energy & infrastructure matters

Issue 203 – February 2021

 

From the editor’s desk…

 

Welcome to Pipes & Wires #203, and we hope that the New Year finds you all fit and well. This issue starts with a look at some emerging gas supply constraints in New Zealand and Australia, and then looks at how emerging technologies are being regulated in the US and the UK.

 

We then examine 2 regulatory decisions from New Zealand and the UK, and conclude with an update on Pennsylvania Power & Light’s sale of Western Power Distribution. So … until next time, happy reading…

 

Subscribe to Pipes & Wires

 

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

 

Recent client projects

 

Recent client projects include…

 

·     Providing an independent review of asset condition and spend forecasts for a distribution company investor.

 

·     Estimating the costs of DERMS (distributed energy resource management system) penetration for distribution feeders for a large US electric company.

 

·     Identifying leading practices in behind-the-meter activities (eg. batteries, solar, smart data, VPP’s etc) for a large US electric company.

 

·     Identifying key learnings from the transformation of a Dutch electric, gas and heat company for a large US electric company.

 

·     Identifying best Australian practices in EV charging for a large US electric company.

 

·     Identifying key features of demand management in the Australian NEM for a large US electric company.

 

·     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.

 

Cool multimedia stuff

 

Clean electricity

 

Those with a liking for Brit Comedy might appreciate Mrs Bucket’s concern for clean electricity.

 

Asset management and asset strategy podcasts

 

My colleagues at the UMS Group have put together a series of podcasts on asset management and asset strategy, including an interview with me on how to make asset management happen in small companies. This has also been republished as a short narrative.

 

Energy mix and grid security

 

NZ – reduced Pohokura production for 2021

 

Introduction

 

Pipes & Wires #201 examined the recent downgrading of the remaining Pohokura gas reserves by about 217 PJ (about 14½ months national consumption). This brief article notes recent production problems that are expected to reduce Pohokura’s output for the 2021 calendar year. 

 

Recently signaled production cuts

 

In late 2020 Pohokura’s operator, OMV, noticed an unexpected and unexplained decline in gas production by about 15% after performing well maintenance earlier in 2020. OMV has stated that production for 2021 will be uncertain, and is expected to be about 39 PJ for 2021 (compared to 67.7 PJ for 2019)

 

The implications of tightening gas supply

 

Key implications of this forecast tightening of gas supply include…

 

·     Higher gas prices (noting that prices in emsTradepoint have doubled since the unplanned Pohokura outages in 2018), which in turn will increase the cost of gas-fired electricity.

 

·     Less gas available for electricity generation (Contact Energy has had its allocation for 2021 reduced from 14.3 PJ to 10.6 PJ), which will require changes in the primary energy mix that could include using hydro reserves or burning more coal at Huntly.

 

Pipes & Wires will comment further on NZ’s gas supply situation as we progress towards the 2021 winter.

 

Aus – gas under pressure in the West

 

Introduction

 

Pipes & Wires #197 examined the Australian Energy Market Operator’s (AEMO) Gas Statement Of Opportunities (GSOO) for eastern and south-eastern Australia. This article examines the recently released GSOO for Western Australia (WA) and notes a possible shortfall of gas supply in WA by about 2029.

 

The AEMO’s latest GSOO

 

Key features of the latest GSOO for WA include…

 

·     The WA gas market is expected to be well supplied until 2026, finely balanced until 2028, and with possible shortfalls by 2029.

 

·     Overall gas supply is expected to decline at an average rate of 2.8% per year from 2021 to 2030.

 

·     Overall gas demand is expected to increase at about 0.7% per year, due mainly to mining and minerals.

 

·     Demand is forecast to exceed supply by somewhere between 4% and 9% by 2029.

 

·     Five committed projects are expected to add about 40 TJ (about 4%) per day of supply from 2023.

 

·     Gas-fired electricity demand in the South West Interconnected System (SWIS) is expected to decline by about 0.4% per year due to the entry of large scale renewable generation.

 

Mitigating the supply gap

 

The GSOO sets out several options for mitigating the supply gap, including…

 

·     Identifying additional reserves at existing wells.

 

·     Drawing down short-term storage (up to about 210 TJ per day).

 

·     Bringing undeveloped gas fields into production.

 

·     The emergence of unidentified supply projects.

 

Further reading

 

Readers might be interested in the following further reading…

 

·     PW #197 – re-examining the gas exploration moratoria.

 

·     PW #162 – gas under pressure on the east coast.

 

Regulating emerging technologies

 

US – who should own EV chargers ?

 

Introduction

 

Over the last couple of years ago Pipes & Wires examined some thorny issues around EV chargers, and in particular whether electric companies should be allowed to own chargers. This article re-visits that issue, prompted in part by an article in the Wall Street Journal.

 

The key issues

 

The key issues that Pipes & wires has examined include…

 

·     Whether electric distribution companies should be allowed to own public EV chargers, as distinct from only allowing third-party operators (reflecting regulators preference for free markets).

 

·     Whether the capital cost of public EV chargers should be included in an electric company’s rate base (regulatory asset value), allowing recovering of that capital cost from all customers rather than from just EV drivers.

 

·     Whether the tariffs of all EV chargers would be regulated, or only just the tariffs of those chargers owned by electric companies.

 

·     Whether individual state regulators actually have jurisdiction over EV chargers.

 

·     Whether EV chargers are selling electricity or just selling a charging service.

 

·     The wider chicken-and-egg conundrum of slowing EV uptake because of the limited numbers of public chargers.

 

Readers might recall that this led to a bit of an impasse between electric companies who were willing to install and operate public chargers on a regulated basis, and charging companies and regulators who preferred a free market model.

 

Emerging thinking

 

It appears that many states are now warming to electric companies rolling out public chargers, presumably because that is the most likely way to increase EV uptake. Pipes & Wires will re-visit this theme as news emerges.

 

UK – updating the digital strategies

 

Introduction

 

Digitalisation represents an unprecedented frontier for electric distribution companies, and regulators seem keen to make sure it happens well. This article examines UK energy regulator Ofgem’s requirement for energy networks to compile and disclose digitalisation plans.

 

Ofgem’s requirements

 

Ofgem’s requirements included…

 

·     In September 2019, Ofgem invited energy networks to compile and submit digitalisation plans as part of their RIIO – 2 business plans.

 

·     Following submission of those digitalisation plans in December 2019, Ofgem reviewed the plans and made recommendations on how they could be improved.

 

·     In June 2020 Ofgem set out its requirements for updating and publishing the digitalisation plans by 31 December 2020. Ofgem also proposed to introduce an additional license condition requiring regular updates of the digitalisation plans.

 

The December 2019 digitalisation plans can be found here … it’s worth having a quick browse through these plans.

 

Next steps

 

Pipes & Wires will comment further once the updated plans are published.

 

US – paying for rooftop solar electricity

 

Introduction

 

Shifting of costs from rooftop solar customers to non-solar customers seems to be 1 of the major issues that regulators are grappling with. This article examines recent thinking from California against a backdrop of other states thinking.

 

Where the other states have got to

 

Other states recent thinking is summarised in the following table…

 

State

Recent thinking

Alabama

·     Alabama Power currently charges $5/kW to connect rooftop solar to its network, and sought to increase that monthly charge to $5.42.

·     Various groups opposed that tariff, and petitioned the APSC to prohibit the charge.

·     Alabama Power sough to have that petition dismissed, and permit the proposed increase.

·     The APSC dismissed the petition, and approved the monthly increase.

 

Utah

·     Solar advocates requested that Rocky Mountain Power’s feed-in tariff of 9.2 c/kWh be allowed to continue.

·     The UPSC settled on 5.969 c/kWh for summer and 5.639 c/kWh for winter.

·     Rocky Mountain Power sought a reduction to 1.5 c/kWh.

 

Kansas

·     Evergy sought a monthly access fee of $3 / kW or a minimum monthly bill of $35.

 

 

The above table shows that electric companies want higher fixed monthly charges and lower feed-in tariffs, whilst the solar lobby wants the opposite.

 

California’s thinking

 

California is searching for a successor to its current nett energy metering arrangements, primarily as the penetration of rooftop solar increases. Some noteworthy observations include…

 

·     Simply paying rooftop solar customers at the prevailing retail rate overpays them (Edison Electric Institute).

 

·     Successors to many states existing feed-in tariffs are premature because the solar penetration is still low enough for solar benefits to exceed the costs (Solar Energy Industries Association).

 

·     That the benefit-to-cost ratio of rooftop solar starts to decline when solar injection reaches about 5% of maximum demand.

 

·     The FERC concluded in July 2020 that nett energy metering is subject to state jurisdiction, reducing the possibility of a national one-size, fits all policy.

 

California’s 22% solar penetration suggests that a substantial overhaul of nett metering requirements dating back to 1996 is merited. Pipes & Wires will examine the California’s thinking as it progresses.

 

Network regulatory decisions

 

NZ – final decision on WE* transition back to a DPP

 

Introduction

 

Pipes & Wires #201 examined the Commerce Commission’s Draft decision for Wellington Electricity’s transition back to a default price (DPP) on 1st April 2021. This (very) brief article follows up with a look at the Final Decision.

 

The final decision

 

The key feature of the Final Decision is an allowable revenue of $91.109m for the year ending 31st March 2022 (known as the second assessment period). This represents a 0.6% reduction in revenue from the end of the customised price path (CPP), which is a smaller reduction than the 2.5% reduction in the Draft Decision.

 

UK – final RIIO – 2 decisions

 

Introduction

 

Pipes & Wires #200 examined Ofgem’s draft RIIO – 2 decisions for gas distribution, gas transmission and electricity transmission. This article follows up with the final decisions.

 

Allowable TotEx for gas distribution

 

The allowable TotEx for each gas distributor is as follows…

 

Company

Submitted

Draft decision

Resubmitted

Final decision

Wales & West

£1,182m

£997m

£1,203m

£1,157m

Cadent

£5,318m

£4,078m

£5,137m

£4,620m

Northern

£1,249m

£1,083m

£1,250m

£1,174m

SGN

£3,058m

£2,527m

£3,007m

£2,639m

 

Allowable TotEx for transmission

 

The allowable TotEx for each transmission company is as follows…

 

Company

Submitted

Draft decision

Final decision

National Grid Gas Transmission

£2,754m

£1,627m

£2,092m

National Grid Electricity Transmission

£7,090m

£3,332m

£5,335m

Scottish Power Transmission

£1,389m

£970m

£1,213m

Scottish Hydro Elec Transmission

£2,388m

£1,608m

£2,159m

 

This concludes Pipes & Wires coverage of the RIIO – 2 for gas distribution and for transmission.

 

Industry reshuffling

 

US – Pennsylvania Power & Light’s sale of Western Power Distribution

 

Introduction

 

Pipes & Wires #200 introduced Pennsylvania Power & Light’s (PPL) proposed sale of its’ UK subsidiary Western Power Distribution. This article provides a bit of an update as possible buyers emerge.

 

Possible buyers

 

Possible buyers are thought to include…

 

·     Pension funds – Ontario Teachers’ Pension Plan. Regulated infrastructure provides steady cashflow, which pension funds obviously need.

 

·     Investment funds – Brookfield Asset Management, Macquarie Group and Dalmore Capital.

 

·     Electric companies – National Grid and Iberdrola. Both of these companies already have US assets which could be swopped for WPD, allowing PPL to consolidate its regulated US business.

 

Possible valuation

 

WPD’s numbers are as follows…

 

·     Annual revenue – £1.68b.

 

·     EBITDA – £1.25b

 

·     NPAT – £604m.

 

·     RAB - £8b

 

·     Book value – £14.7b

 

Media comment suggests a valuation of 9.5x to 10.5x EBITDA, or between £11.9b and £13.1b. This would value WPD towards the high end of recent regulated infrastructure valuation multiples, which is considered appropriate for a leading company.

 

Pipes & Wires will comment further as the sale progresses.

 

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.

 

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 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.