From the director…
Welcome to Pipes & Wires #75.
This issue starts by examining the recently commenced cost of equity review in
Australia. We then examine some regulatory decisions from the UK, France and
Australia and consider a few thoughts on the likely role of coal in the power
generation sector.
We then examine the end of three
lengthy acquisition saga’s, two of which have come to a happy ending and one to
a not so happy ending. We then consider two regulatory policy issues in New
Zealand and conclude #75 by examining the end of the proposed privatisation of
generation in New South Wales.
Because several articles in Pipes
& Wires #75 deal with legal matters, please note the disclaimer at the end.
About Utility Consultants
Utility Consultants Ltd is a
management consultancy specialising in the following aspects of energy and
infrastructure networks…
|
|
|
|
|
|
To be sent a detailed profile of
recent projects, pick
this link.
Finance
Aus – reviewing the cost of equity
Introduction
Pipes
& Wires #74 examined the two-tier cost of equity that the Bundesnetzagentur will
apply to German gas and electric utilities from 1 January 2009. This article continues
that focus on cost of equity by examining the commencement of a review of the
various WACC parameters used by the Australian
Energy Regulator (AER).
Basis for the review
The National Electricity Rules (NER)
provide for the AER to review the WACC parameters used in electricity
distribution and transmission determinations. Reviews may be conducted at 5
yearly intervals, with the first review being completed by 31st
March 2009.
It is important to note that the
NER limits the scope of the review to individual WACC parameters rather than
the overall framework within which the WACC is used. These parameters are…
·
The nominal risk-free rate.
·
The equity beta.
·
The expected market risk premium.
·
The gearing ratio.
·
The credit rating levels used to calculate the debt risk premium.
·
The assumptions around imputation credits
Factors to be considered by the review
In undertaking a WACC review, the
AER needs to consider a number of factors set out in the NER, such as the need
for a forward looking rate of return commensurate with prevailing market
conditions for funds and risks, to be efficient, recognition that many of these
parameters cannot be determined with certainty, and to achieve an outcome that
is consistent with the national electricity objective – all good stuff, but
certainly nothing surprising.
The National Electricity Law
(NEL) states this national electricity objective. The objective requires inter alia promoting efficient
investment … for the long term interests of consumers … with respect to price,
quality, safety, reliability and security of supply and the reliability, safety
and security of the national electricity system. Many of us will no doubt have
strong views on the long term interest aspect of the objective !!!!
Issues that the AER wants to examine
A selection of issues that the AER
wants to examine include…
·
What a suitable gearing ratio should be, noting that all previous
jurisdictional regulators have assumed 60% debt and 40% equity.
·
Whether the yield to maturity of Commonwealth Government
Securities is the best proxy for risk-free rate.
·
Whether the observed excess of market returns over government bond
rates continues to be a suitable proxy for a forward-looking market risk
premium.
·
Does the regulatory regime have any impact on a utility’s
non-diversifiable risk?
·
Whether the assumptions to date about credit rating are still
valid.
·
Whether the assumptions to date about the use of imputation
credits are valid.
Applicability to future decisions
The outcomes of this review will
apply only to determinations for which the proposal is submitted after 1st
March 2009 and before 1st April 2014, viz…
·
The outcome of the review will apply to the forthcoming SA,
Queensland and Victorian distribution determinations.
·
The outcome of the review will not apply to the forthcoming
ACT and NSW distribution determinations or to the forthcoming NSW and Tasmanian
transmission determinations.
Next steps
The period for making written
submission to the AER has already closed. The AER expects to publish draft
decisions in December and receive written submissions on those draft decisions
until late January 2009. The final decisions will be released around the end of
March 2009.
Regulatory
determinations
UK – update on the 2010 water price control
Introduction
OFWAT
is currently compiling the price controls that will apply to all UK water and
sewage businesses for the 5 year period starting on 1st April 2010. Pipes
& Wires #67 examined OFWAT’s initial thoughts, whilst this article
examines the one-page summaries of each businesses water plans.
Summary of OFWAT’s initial thoughts
It was pleasing to note the
following among OFWAT’s initial thoughts…
·
The very refreshing view that further customer value will be
unlocked not by continued regulation but by vigorous competition.
·
The expectation of a 25 year planning horizon in which the next
price control period is but a first step.
·
The need to better identify the service and price trade-offs of
future capital projects.
Progress to date
Having consulted on its initial
thoughts and the associated conceptual issues, all companies have submitted
their draft
business plans to OFWAT. This in itself represents a major milestone as the
linkages from the broad strategic and regulatory drivers to the detail spend
plans have now been made.
Next steps
Final business plans will be
submitted in April 2009. OFWAT expects to publish its draft decisions in July
2009 and, after consultation, its final decisions in November 2009. Pipes &
Wires will examine the draft decisions in about 12 months time.
France – gas distribution tariffs amidst uncertainty
Introduction
Setting tariff controls obviously
requires a high degree of certainty about a regulated business’ costs
throughout the control period. This article examines the Commission de Régulation de l’Énergie’s (CRE) findings
in regard to the structural changes to Gaz
De France’s (GDF) distribution business earlier this year.
Background
In compiling the gas distribution
price control timed to start on 1st January 2006 the CRE recognised that
the requirement for full retail contestability and pipes - energy separation by
1st July 2007 would have made it difficult to establish robust price
controls when the costs of structural and institutional change were largely
unknown. Accordingly, the CRE decided on a two year duration for that price
control with the expectation of proposing fresh tariffs as the need arose.
GDF splits off its distribution business and seeks a tariff
increase
On 1st January 2008 GDF unbundled
its distribution activities into a separate company called Gas Réseau Distribution France (GrDF).
Prior to the formation of GrDF,
in July 2007, GDF wrote to the CRE requesting a new tariff to apply from 1st
January 2008 and indicating that a tariff increase of 11.7% would be necessary
to cover costs from that date, and that an annual review along with inflation
and productivity indexing of 1.5% would be appropriate.
The CRE’s response
After an extensive review of
GDF’s actual costs, and GrDF’s expected costs, the CRE reached the following
conclusions…
·
That a 1.3% productivity index at the tariff level (reflecting a
2.7% productivity indexation at the underlying cost level) was appropriate.
·
That a 4 year tariff period would be appropriate.
·
For cost and revenue items that would be difficult for GrDF to
accurately project, a correction mechanism between budgeted and actual costs
would be included.
·
That a financial incentive for improving service quality would be
included (presumably a bit like the Victorian S-factor).
·
A WACC of 6.75% given that GrDF faces reduced risks from increased
regulatory certainty.
·
That increased renewal costs for replacing grey iron pipes was
appropriate.
·
That weak growth in gas volume and connection numbers would not
adequately off-set increased costs.
The CRE is working toward a
publication date of 1st July 2009 for the tariffs for other gas
distribution networks.
Aus – classifying the Queensland electricity services
Introduction
Recent issues of Pipes &
Wires have examined the compilation of the price controls that will apply to Energex and Ergon Energy for the 5 year period
beginning on 1st July 2010.
To date, the work has been based around classifying the services and
control mechanisms. This article examines the Australian
Energy Regulator’s (AER) recent final classification decisions.
Background
The National Electricity Rules (NER)
requires that any distribution determination made by the AER include a decision
on the classification of the services to be provided by the distributor, and
the form of the control mechanisms. The process to date has been for both
Energex and Ergon to propose to the AER what services should be subject to
standard control and what services should be unregulated, and then whether the
form of control should be fixed revenue cap or weighted average price cap. Pipes
& Wires #70 and #73
discuss the respective proposals in detail.
The final step of the first part
of this work stream is for the AER to set out its final decisions on those
matters in a Frameworks & Approaches Paper, which forms the subject of the
final section of this article.
The AER’s final decisions
The AER’s final decisions for
Energex are as follows…
|
Service |
Classification |
Form of control |
||
|
Sought by Energex |
AER final decision |
Sought by Energex |
AER final decision |
|
|
Network services |
Standard control services |
Standard control services |
Revenue cap |
Revenue cap |
|
Connection services |
Standard control services |
Standard control services |
Weighted average price cap |
Revenue cap |
|
Metering |
Standard control services |
Standard control services |
Weighted average price cap |
Revenue cap |
|
Street lighting |
Unregulated |
Alternative control services |
NA |
Weighted average price cap |
|
Quoted services |
Standard control services |
Alternative control services |
Weighted average price cap |
Weighted average price cap |
|
Fee-based services |
Standard control services |
Alternative control services |
Weighted average price cap |
Weighted average price cap |
|
Unregulated |
Unclassified |
Unclassified |
NA |
NA |
The AER’s final decisions in
regard to Ergon are as follows…
|
Service |
Classification |
Form of control |
||
|
Sought by Ergon |
AER final decision |
Sought by Ergon |
AER final decision |
|
|
Network services |
Standard control services |
Standard control services |
Revenue cap |
Revenue cap |
|
Connection services |
Standard control services |
Standard control services |
Weighted average price cap |
Revenue cap |
|
Metering |
Standard control services |
Standard control services |
Weighted average price cap |
Revenue cap |
|
Street lighting |
Unregulated |
Alternative control services |
NA |
Weighted average price cap |
|
Quoted services |
Standard control services |
Alternative control services |
Weighted average price cap |
Weighted average price cap |
|
Fee-based services |
Unregulated |
Alternative control services |
Weighted average price cap |
Weighted average price cap |
|
Unregulated |
Unclassified |
Unclassified |
NA |
NA |
Next steps
Publication of the AER’s final
decision brings the first part of the approaches and frameworks work stream to
a conclusion. The second part of this work stream is for the AER to publish how
it will deal with specific schemes such as such as demand management incentive
schemes and efficiency benefit sharing schemes, which is expected around the
end of November 2008.
Energy policy
Global – the future of coal
Introduction
In a world that seems
increasingly fixated with man-made carbon emissions, the logical conclusion
might be that coal has had its day. This article considers some recent research
and examines some issues that suggests that, to the contrary, coal might well
live to play another day.
The expected increase in coal-fired generation
Recent research indicates that about
49% of electricity generated in the US is coal-fired, and that by 2030 this is
likely to increase to about 54%. The numbers of new coal-fired units either
under construction or planned for the immediate future is a bit mind boggling …
something like 44,000MW either already under construction or scheduled to start
construction before the end of 2009, with a further 24,000MW scheduled to start
construction between 2010 and 2017. And this is just in the US…
A few thoughts on the matter
Perhaps it would be helpful to
set out the following thoughts….
·
Despite the best intentions of the green lobby, energy consumption
is increasing. Although the energy efficiency movement may be making some
in-roads on off-setting consumption and peak demand, overall consumption is still
increasing.
·
Gas … the cheap, wonder fuel of the 1980’s …. is increasingly
linked to the price of oil.
·
Gas is increasingly sourced from countries such as Russia and
Iran, countries that the West finds itself on increasingly strained terms with.
·
Increased awareness of the need for security of electricity
supply, coupled with the increasing recognition that renewables are not
generally secure.
·
Despite an increasing recognition of the advantages of nuclear
from all sectors of the community, nuclear doesn’t seem to have quite reached a
tipping point of unchallenged acceptance.
Coal on the other hand, has
plenty of advantages…
·
There are billions of tons of coal left.
·
Coal prices are less volatile than gas prices.
·
Coal-fired generation provides secure supply.
·
Western countries could become less dependent on potentially
hostile nations for their primary energy.
·
Coal deposits are located closer to the electricity demand, unlike
gas which is being transported increasing distances.
These are all very
inter-dependent strategic issues for which there is no simple answer, and
indeed any one clear-cut answer is unlikely to play out. What is apparent is
that coal might well live to play another day.
NZ – proposed NPS for renewable generation
Introduction
The proposed National Policy Statement (NPS) for
Renewable Electricity Generation was released by the Ministry for the Environment (MfE) on 13
August 2008. It establishes the national significance of the benefits
associated with renewable energy generation, and is intended to promote a
nationally consistent approach to balancing the competing interests in
developing renewable resources.
Policy
background
The NPS was foreshadowed by the New Zealand
Energy Strategy and the New Zealand Energy Efficiency and Conservation
Strategy, which targeted 90% renewable electricity generation by 2025. The
proposed NPS fits with the Government’s proposal to amend the Electricity Act
1992 by imposing a 10-year restriction on new base load, fossil-fuelled thermal
generation. It also aligns with 2004 amendments to Part 2 of the Resource
Management Act (RMA), which require all persons exercising functions and powers
under the RMA to have particular regard to the effects of climate change and the benefits to be derived from the
use and development of renewable energy.
International
obligations under the Kyoto Protocol are also relevant. Background documents to
the proposed NPS (evaluation
under section 32 of the RMA published by the Ministry for the Environment; and
Government’s Regulatory Impact Statement)
include an acknowledgement that it is intended to assist limit NZ’s potential
economic liabilities on the international carbon market.
Closer to home, the
Government recognizes that the RMA process can represent a significant barrier
to renewable energy projects - from 1991 to mid-2006, over half of all wind
projects were subject to Environment Court appeal, and only two new hydro
projects of any significant scale gained appeal-free resource consents.
So
what does the proposed NPS say?
The proposed NPS is very concise, including
just five policies. Once finalised, local and regional authorities must give
effect to it by changing their respective plans. The NPS must also be taken
into account when consent authorities make decisions on resource consents or
designations.
Policies 1 and 2 recognize the national
significance of the benefits of renewable electricity generation, making it
clear that the benefits of renewable generation are not dependent on the scale
of the project or whether the benefits are local, regional, or national. They will
require decision-makers under the RMA to consider the practical constraints
associated with the development of new and existing renewable generation
activities, which may limit the ability of developers to avoid, remedy or
mitigate associated adverse environmental effects.
Policy 3 requires decision-makers to have
regard to the relative reversibility of adverse effects associated with
particular generation types. This policy appears to prefer development of wind
and developing generation types (such as tidal or wave) over hydro generation.
Policies 4 and 5 require local authorities,
by 13 March 2012, to notify changes to their district plans to enable…
·
Generators to identify and assess potential sites and
energy sources for renewable generation.
·
Research-scale investigation into emerging renewable
electricity generation technologies and methods.
·
Development of distributed, small and community-scale
renewable electricity generation.
Next
steps
A Board of Inquiry has been appointed to
consider the NPS. It is expected that the Board will publicly notify the NPS
and call for submissions within the next month. Further down the track, expect
to see some strong views from the major electricity generators and
conservation/public interest groups over amendments to district plans.
In addition, Government has hinted that the
RMA may be amended to give electricity generators the ability to apply for
requiring authority status, thereby enabling them to issue notices of
requirement for designations.
Thanks to Chris Simmons and Laura Cooper of ChanceryGreen, resource management and
environmental lawyers for writing this article. Should you have any queries
regarding this article, please contact Chris on (09) 357 0344 or email chris.simmons@chancerygreen.com
Mergers,
acquisitions & take-overs
Aus – BG abandons its bid for Origin
Introduction
The last few issues of Pipes
& Wires have examined BG Group’s
unsolicited bid for Origin Energy
that would’ve been one of the biggest deals ever done in Australia. However
this has proved to be an on-again, off-again deal, and this article examines
the final off-again in which BG’s offer was overtaken by an offer from Conoco-Phillips.
Background
BG Group made its first play for
Origin in May this year, with a cash offer of A$12.9b which represented a
premium of about 40% on Origin’s closing price. Their stated strategy was to
become a major player in the South Pacific region however it soon became
apparent that securing gas for their UK markets via an LNG development was also
a key part of their strategy.
BG’s initial offer was rejected
because whilst the initial offer of A$14.70 per share was at a premium to
Origin’s trading price, Origin believed that the offer did not fairly reflect
the yet-to-be-fully-revealed value of Origin’s coal seam gas reserves.
The final move
The final move played out over
the last few weeks was Origin’s signing of a deal worth A$9.6b with
Conoco-Phillips for 50% of its coal seam gas business. This deal confirmed that
Origin’s coal seam gas business alone was worth about A$19.2b, whilst an
independent valuation indicates Origin’s entire business to be worth as much as
A$27b, or between A$28 to A$30 per share.
So after two attempts, BG has abandoned
its’ pursuit of Origin, acknowledging that although it wanted Origin it didn’t
want it that badly. That note brings Pipes & Wires coverage of this exciting
story to a close.
US – Iberdrola finally catches Energy East
Introduction
Spanish utility Iberdrola has been chasing US utility Energy East over the last year, and has encountered
some curly regulatory and public policy objections. This article recaps the
whole saga and examines the successful conclusion of this deal.
Background
Iberdrola’s €6.4b bid for Energy
East would give it 3 million customers in the eastern US, complimenting its
customer base in the western US (ScottishPower
subsidiary Pacificorp). This required
regulatory approvals from the FERC, Massachusetts,
New Hampshire, Connecticut, Maine and New York. The curly regulatory and
political issues were three-fold…
·
The New York Public Service Commission was concerned that
because Iberdrola itself was the subject
of a take-over bid by Electricite De France
and Grupo ACS, Energy East might end up
without a strong parent and be unable to reinvest in its networks.
·
New York Senator Charles
Schumer waded into the debate and demanded a number of concessions that
essentially required Iberdrola to implement the State’s public policy
objectives in return for not blocking the deal. In particular, Schumer wanted
Energy East to aggressively pursue wind power.
·
An administrative law judge recommended that the deal be blocked
because it was not in the public interest.
Readers may recall that the real
tear-jerker was that the Public Service Commission was likely to have
prohibited Energy East from owning generation within its own network area,
which seems at odds with the state’s policy of having 25% renewable energy by
2013 (and a utility willing to contribute to that policy).
The end game plays out
In early September, the Public
Service Commission voted 4-0 to approve the deal in what is understood to be a
compromise that protects consumers’ interests but ensured that Iberdrola
doesn’t make good on its threat to abandon the deal if the conditions imposed
were too onerous (one of the Commissioners did comment that she was not willing
to see Iberdrola abandon the deal).
The concessions finally demanded
of Iberdrola are understood to include…
·
Put aside US$275m to off-set future tariff increases (Commission
staff had originally recommended that US$646m be put aside).
·
Selling the fossil-fuelled generation within New York State but
being allowed to keep wind generation (the state’s usual policy is to prohibit a
lines business from owning any generation).
·
Committing to develop at least US$200m of wind power in New York State
(Iberdrola has publicly stated it is prepared to invest US$2b in wind power).
·
Insisting that any future wind generation developed by Iberdrola
is not done through Energy East or one of its subsidiaries.
Iberdrola accepted the deal on 17th
September, and became the 4th largest electric utility in the world.
So this ends Pipes & Wires coverage of this deal.
UK – EDF catches British Energy
Introduction
British Energy’s highs and lows (and
woes) have been a regular feature in Pipes & Wires for several years now.
This article examines Electricité de France’s
(EDF) successful of British Energy which brings to a close the long-running
saga of the UK government wanting to quit its investment.
Background
We left this story last month
with the comment that EDF’s pursuit of British Energy seemed to be a rather
“on-again, off-again” affair that appeared to have soured. Readers will recall
that BE had put itself on the market at a suggested minimum price of Ł7.50 per
share, but that EDF’s offers were about 50p to 70p short of that minimum.
At last – a deal is closed
In late September it was
announced that EDF subsidiary Lake Acquisitions Ltd would pay Ł7.74 per share
for 100% of BE’s shares (valuing BE at Ł12.5b) in a deal that is still subject
to shareholder and regulatory approval. An alternative consideration is Ł7 per
share plus a “nuclear power note”.
EDF shares rose 3.6% whilst BE
shares rose 5.7% when the deal was announced.
Not one deal, but two
It has also been announced that
UK energy supplier Centrica has been in
discussion with EDF about buying a 25% stake in Lake Acquisitions at the same
implied price as the BE acquisition (equivalent to Ł7.74 per share).
Interestingly enough, Centrica shares fell 0.5% on this announcement.
The strategy & public policy issues
On the strategy front, EDF’s
chairman Pierre
Gadonneix commented that the deal contributes to two of EDF’s strategic
goal areas – consolidating its UK presence and strengthening its position as a
global leader in nuclear power, whilst BE chairman Sir Adrian
Montague noted that the deal will match BE’s generating capabilities with
EDF’s supply business.
On the public policy front PM Gordon Brown was also
clearly in favor of the deal, noting the deal’s contribution to securing
Britain’s energy supplies, reducing CO2 emissions, and reducing
dependence on imported oil. Even the UK trade unions seem happy with the deal
!!!
So on the face of it, the deal
certainly will help achieve these objectives. This happy note concludes Pipes
& Wires coverage of the British Energy bail-out.
NZ – update on the Commerce
Amendment Bill
Introduction
The
review of the regulatory framework for electricity lines businesses, gas
pipelines and airports has been a long process, but happily one in which common
sense seems to have prevailed. This article re-caps the review process to date,
examines the Commerce Select Committee’s recommendations that were released in
early August 2008, and notes the Bill’s successful third reading and passing
into law.
Background
Back in
2006 the Minister of Commerce announced that Parts 4 and 5 of the Commerce Act
would be reviewed. Several months later, the scope of the review was widened to
include Part 4A. The conclusions of the review were released in November 2007
and inter alia recommended the
following…
·
A suggested Purpose Statement for Part 4 includes “have incentives
to innovate and to invest, including in replacement, upgraded and new assets
and in related businesses”.
·
Proposed that input methodologies be set out in a stand-alone
up-front.
·
Para 63 recommends that 100% trust-owned electricity lines
businesses be subject to information disclosure only.
·
Para 79 recommends that all gas pipelines except Nova Gas and the Taranaki pipelines be subject to a “default / customized
price path regime” and that Powerco and Vector (which were already under control) transfer to this regime at the
end of the current regulatory period.
The Commerce Amendment Bill was released in mid-March 2008, and embodied pretty much all of
the recommendations of the review. After passing its first reading it went to
the Commerce Select Committee, which made its recommendations to the Minister in early
August 2008. That’s where we pick up the story again.
The Committee’s recommendations
The
Committee recommended the following amendments to the Bill
|
Bill
paragraph |
Proposed
amendment |
|
Under the heading of Input Methodologies… Interested parties have a right of appeal against the
input methodologies to the High Court sitting with lay members |
The criterion for appeals
is that an amended methodology would be materially better in meeting the
purpose statement in the opinion of the court. |
|
Under
the heading of the Negotiate / Arbitrate Regime… The processes and procedures for the negotiation and
any arbitration are set by the Commerce Commission |
The Commission also
appoints an arbitrator if the parties cannot agree on one. The criterion for
arbitral awards is promoting the purpose statement |
|
Under
the heading of Default Customised Regime… The start price may be existing prices or amended
prices, and the rate of change in prices will be determined by the consumer
price index less a requirement for productivity improvement, based on long
run productivity improvement rates for the sector. |
The Commission is
precluded from using comparative benchmarking on efficiency for setting
default paths. |
|
Explicit powers are
provided for the Commission to set quality standards (including to reduce
energy losses) and to incentivise meeting or exceeding those standards |
|
|
Under
the heading Appeals On Final Decisions… |
Interested parties will
have a right of appeal to the High Court against final decisions taken by the
Commission on customised price paths. Decisions of the Commission will take
effect pending the outcome of any appeals. |
|
Under
the heading Electricity Lines Businesses… The Commission will be required to set a default
path for these ELBs by 1 April 2010. Existing Part 4A thresholds will be
rolled over until then. |
Existing Part 4A
processes and penalties will apply to any breaches. |
|
Promote incentives and
avoid disincentives (for ELBs to invest in energy efficiency, demand-side
management, and reduction of energy losses). |
The Bill’s passing into law
After the
release of the Committee’s findings, the Bill had its third reading in
Parliament on 2nd September and received royal ascent on 16th
September. Although this marks the end of Pipes & Wires coverage of the
Bill it is only the beginning of a new era of regulation which many will find
easier but some may find harder.
NZ – putting lines & energy
back together
Introduction
One of
the key elements of energy sector reform is separation of lines and energy,
ostensibly so that an incumbent lines business cannot favor its own energy
business over competing energy businesses. While Pipes & Wires has been
closely following the EU’s determined move toward separation, New Zealand has
(in another great victory for common sense) moved further toward allowing lines
companies to be more involved in energy generation and retailing.
Background
The
Electricity Industry Reform Act 1998 (EIRA) required a very significant
separation of lines and energy businesses, leaving lines businesses with only
minor scope for generation. The separation provisions in the Act have been
relaxed several times to allow lines businesses to own and operate more
generation, but in all fairness these relaxations have had a distinct skew
towards the environmental aspects of renewables rather than a clear focus on
generation regardless of source.
The latest moves
The
Electricity Industry Reform Amendment Bill had its third reading in Parliament
on 2nd September and received royal ascent on 16th
September. The Bill, as introduced to Parliament, has three objectives…
·
Make it easier for lines businesses to sell the output of
generation they were permitted to own under the 2001 and 2004 relaxations to
the EIRA 1998.
·
To narrow the scope of arms-length separation to within a lines
businesses incumbent network area.
·
Amending the definition of renewables to encourage development of
renewable generation.
Key
features of the Electricity Industry Reform Amendment Act 2008 include…
·
A lines business can own the following generation…
·
Unlimited renewable generation either within or outside of its
network area.
·
Unlimited non-renewable generation outside of its network area.
·
The greater of 50MW or 20% of maximum network demand of
non-renewable generation within its own network area.
·
A lines business can retail…
·
All of its nominal generation output to its own connected
customers (so a lines business could - in theory - be fully self-sufficient
with renewable energy).
·
Unlimited energy outside its network area.
·
The requirements for a lines business for generation and retailing
include…
·
A separate company and arms-length separation if a lines business
owns more than 10MW of generation within its own network.
·
A written, transparent UoSA with its retail division if it owns
more than 5MW and retails more than 5GWh within its own network area.
·
There are no requirements for generation or retailing outside of
the incumbent network area.
These
relaxations, and the ability to capture the retail margins, are likely to
improve the viability of some generation opportunities.
Privatisations
Aus – the NSW privatisation takes
a new shape
Introduction
Pipes & Wires #74 concluded an article on the proposed NSW privatisation with the
comment that it was likely to sorely test the Iemma Government’s resolve to see it through. This article examines some
recent political manoeverings in the NSW Parliament.
Where we left the story
Pipes & Wires #74 left the story with increasing community opposition from Labor’s
traditional party supporters.
A slight departure from
established practice
In late
August it was announced that Iemma (the words “a defiant Morris Iemma” was used
in the popular press) would sell parts of the NSW electricity system in a
process that did not require Parliament’s approval because … well … Parliament
didn’t approve. In the strictest terms, because Iemma’s amended proposal did
not require legislation, Parliamentary support was not required … but then a
A$12b privatisation is a big thing to undertake without that approval.
Anyway, Iemma
and his off-sider Treasurer Michael Costa were forced into a compromise after the Opposition (funnily
enough, Liberals who normally support privatisation) gazzumped the
privatisation plan, which did have the support of Iemma’s cabinet. Howls of woe
(many seemingly underpinned by political bias) came from many sectors,
including the business lobby which noted that the NSW Government will now have
to bear the cost of two new power stations, although the retailers will still
be sold.
The ax falls
In a
rather telling statement the NSW Union secretary John Robertson commented that
Iemma and Costa were “effectively signing their own political death warrants”. Within
a week this proved to be true in a manner of speaking as Costa was removed from
the Treasurer’s role which was closely followed by Iemma’s resignation as
Premier and from politics.
So where to from here ??
Well
first off Standard & Poor’s considered reducing the State’s credit rating from AAA to AA+
with a negative outlook if it failed to reprioritise its capital works program.
One of Iemma’s key policy platforms was the north-west metro rail which was to
be funded by the generation privatisation proceeds, so it seems that the State
now faces the cost of new power stations and the tough choice of hospitals and
schools or better trains.
So … a
bit of a sad end to what looked to be a promising way forward
CapEx – general interest stuff
Upsizing – the other half of the hidden side of CapEx
This presentation was made at the
Electricity Engineer’s Association
conference in June 2008. If you’d like a copy, pick here.
Getting the CapEx right in the infrastructure sectors
This presentation was made at the
NZIGE Spring Technical Seminar in
September 2007. If you’d like a copy, pick here.
Renewals – (half) the hidden side of CapEx
This presentation was made at the
Electricity Networks Asset Management Summit in November 2007 on the broad
topic of asset renewals. If you’d like a copy, pick here.
PAS 55 – the emerging standard for asset management
To find out more about improving
your asset management activities through adopting the emerging global standard
for asset management PAS 55-1:2004 pick here
or call Phil on +64-7-8546541, or to request a Slide Show on implementing PAS
55-1 pick here.
Website promoting best practice CapEx
Utility
Consultants is pleased to announce the release of a specialist website
dedicated to promoting best practice CapEx policies, processes and planning in
the infrastructure sectors.
Assorted conference papers
Utility Consultants has recently
presented the following conference papers which are available upon request…
·
“Tariff
control of Pipes & Wires utilities – where is it heading??” – presented
at the NZIGE Spring Technical Seminar,
October 2006.
·
“Setting
service levels for utility networks” – presented at the Electricity Network
Asset Management Summit, November 2006.
Conferences & events
·
Southern Africa
Energy Efficiency Convention (Gauteng, 6 – 7 November 2008).
·
Infrastructure
CapEx Summit (Auckland, 24 – 25 November 2008).
·
Advanced
Metering Summit (Auckland, 26 November 2008).
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 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.
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.