Pipes & Wires
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…
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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
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. |
|
· 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. |
|
· 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 |
£1,182m |
£997m |
£1,203m |
£1,157m |
|
£5,318m |
£4,078m |
£5,137m |
£4,620m |
|
£1,249m |
£1,083m |
£1,250m |
£1,174m |
|
£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 |
£2,754m |
£1,627m |
£2,092m |
|
£7,090m |
£3,332m |
£5,335m |
|
£1,389m |
£970m |
£1,213m |
|
£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.
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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
based on the contents of Pipes & Wires including any loss, damage or
exposure to offensive material from linking to any websites contained herein,
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