From the director…
Welcome
to Pipes & Wires #92. This issue includes coverage of 3 significant
mergers, looks at a wide range of policy and regulatory matters, and introduces
a historical interest series on “Famous Power Struggles”. For those who are
really interested in smart grids, this issue also includes 2 topical articles.
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Matters for attention
NZ – safety management systems
Introduction
The
overhaul of safety around electricity generation and distribution assets
reached a milestone with the commencement of the Electricity
(Safety) Regulations 2010 on 1st April 2010 pursuant to Sections
169, 169A and 169B of the Electricity Act 1992. This article follows on
from previous articles in Pipes
& Wires #62 and #87.
Background
The
overhaul of electricity and gas safety saw the eventual introduction of the
Energy Safety Review Bill, which had a two-fold purpose…
· Improve the electricity and gas safety regimes to
effectively protect the public and property.
·
To improve the occupational regulation
of electrical workers, gas fitters, plumbers and drain-layers.
The
Bill was enacted in late 2006 as the respective Electricity Amendment Act 2006
and the Gas Amendment Act 2006. Both of these Acts explicitly require
electricity and gas distributors to implement and maintain a safety management
system with regard to public safety in accordance with any regulations made
under the respective Acts.
Ensuring compliance
Part
4 of the Regulations address “safety of works” ie. generation and distribution
plant, in particular paragraphs 47 to 56. The first step is for a lines
business (or a generator) to establish a safety management system (SMS) and
have that SMS audited by 31st March 2012.
For
help with establishing an SMS, pick here
or call Phil on (07) 854-6541.
Mergers & acquisitions
US – progress on EDF’s bid for
Constellation Energy
Introduction
This
article (belatedly) continues to examine the lengthy saga of Electricité de France’s bid for Constellation Energy that Pipes &
Wires began covering well over a year ago.
Progress to date on the deal
Last
time we examined this deal (in November 2009) the Maryland state government was
concerned that Constellation subsidiary Baltimore
Gas & Electric would be used as a cash-cow to fund Constellation and
EDF’s wider activities. We also noted EDF’s attempts to sell its UK
distribution business EDF Energy to fund new acquisitions (which is the subject
of a separate series of articles).
Recent movements
The
following movements have occurred recently...
·
In October 2009 the Maryland Public Service Commission ruled
that the deal could proceed if Constellation agreed to the limit the amount of
cash that could be extracted from BG&E and continue with rebates to
BG&E’s customers. Constellation and EDF subsequently agreed to these
conditions.
·
In November 2009 agreement was reached
that Constellation would sell 49.99% of its nuclear business to EDF for $4.5b.
So
that concludes coverage of yet another deal against the changing backdrop of US
utilities.
Belgium – GDF Suez sells Fluxys stake
Introduction
Enforced
asset sales as a condition of being allowed to merge are featuring increasingly
often in the US and Europe as – to use a bit of a tired phrase – the “low
hanging fruit” has already been picked. This article examines GDF Suez’ sale of its’ (indirect) stake in
Belgian gas pipeline operator Fluxys to
Publigas.
The GDF-Suez merger and the regulatory
concessions
Long-time
readers will probably remember the long and drawn-out formation of GDF Suez
against the broader back-drop of forming Europe’s energy champions (Pipes &
Wires #51, #60,
#61
and #63).
Pipes
& wires #65 examined the EU’s market power assessments, and noted that
the merger would give GDF Suez a dominant position in inter alia the wholesale and retail gas markets in Belgium. The
subsequent regulatory concession was for Suez to relinquish control of its
57.25% stake in Belgian gas transmission network operator Fluxys which has annual revenues of about
€430m.
The Fluxys sale
In
late March GDF Suez announced that its’ wholly owned Belgian subsidiary Electrabel would sell a 38.5% stake in
Fluxys to Publigas for €636m, and would then sell its’ remaining 18.75% stake
in Fluxys to Publigas in a second transaction. These 2 transactions will sever
GDF Suez ties with Fluxys, and increase Publigas stake in Fluxys to 89.97%.
Fluxys
EBIT for the 2009 year was €182m. The sale of the 1st tranche
suggests an enterprise value of about €1,652m or an EBIT multiple of 9.1.
Who is Publigas ?
Publigas
is a holding company formed by Belgian municipalities to hold their interest in
gas supplies (which they view as important). Accordingly, Publigas has sought
to increase its’ stake in Fluxys while selling its’ 31.25% stake in Distrigas to Italy’s ENI (which bought a stake in Distrigas from GDF
Suez back in 2008 – all very complicated !!).
A salient observation
One
of the more salient observations is the recurrence of the same giant players,
trading stakes in smaller players as they jockey for position in emerging and
consolidating markets. We saw this happen with the concessions that E.On was required to make when it acquired Ruhr Gas, and now it is happening again.
Undoubtedly the big players’ bankers will be closely watching the regulator’s
announcements of what concessions will have to be made.
US – PPL buys E.On’s US businesses
Introduction
Those
who have been around for a long time (well, 8 years at least) might remember
that Powergen expanded into
the US by acquiring Louisville
Gas & Electric (LG&E), and that Powergen was then acquired by E.On. So we got a multi-layered utility (which
we’ve also encountered with Iberdrola
owning ScottishPower which owned Pacificorp). This article examines Pennsylvania Power & Light’s acquisition
of E.On’s US business, E.On US LLC, which owns LG&E and Kentucky Utilities
Co.
The deal
PPL
will pay $6.7b in cash and assume $925m in debt (and will also receive a tax
benefit with an NPV of $450m) to acquire 941,000 electricity customers, 321,000
gas customers and 8,000MW of generation mainly in Kentucky but also in Virginia
and Tennessee. This will give PPL about 5,000,000 customers in the US and UK
and about 20,000MW of generation in the US.
Approval
from the FERC and the respective state
regulators in Kentucky, Virginia and Tennessee are required as part of the
deal.
Revealing E.On’s strategy
Long-term
readers might remember that Pipes & Wires #48 examined E.On’s “On Top”
strategy which included a long-term expansion strategy in the US Mid-West using
LG&E as the platform. So something has obviously changed quite
dramatically. Examining some media commentary reveals that LG&E took some
impairment charges of about €2.4b soon after acquisition in 2002, and more
widely several of E.On’s acquisitions have turned a bit sour.
So
it appears that E.On’s strategy is now one of reducing debt and divesting
underperforming businesses.
Energy markets
Ireland – update on the SEM
Introduction
Pipes
& Wires #61 examined the formation of the Single Electricity Market
(SEM) which went by the name of the All
Island Project. The SEM was due to kick-off in November 2007, so with
almost 2½ years of operating history it’s time to take another look and discuss
some philosophical issues around markets and price signaling.
Background
The
core of the SEM is a pool into which all electricity generated must be sold
into, and all electricity consumed within or exported from Ireland must be
purchased from. The operation of the SEM will be jointly managed by the grid
operators in each jurisdiction, EirGrid
and SONI respectively.
Subsequent
to that initial article, Pipes
& Wires #66 noted Scottish
& Southern Energy’s prompt entry into the SEM (suggesting that
something must be working well, or at least showed some promise).
Pipes
& Wires #83 then noted in mid-2009 that apart from a few price spikes
early on, the SEM seemed to be working well.
A philosophical view on markets working
To
decide if a market is working, we must firstly define 1 (preferably more)
criteria to assess its performance against. Many might take the view that if
prices rise, a market has somehow “failed”. I’d encourage readers to take the
wider view that markets signal a shortfall of supply with respect to demand by
increasing prices, and (hopefully) if those increased prices are perceived to
be “robust” enough, market participants will invest in new generation.
So
in forming a view on whether the SEM is working, we must consider not simply
whether prices have risen, but whether any price rises are robust enough to
encourage new generation.
So is the market actually working ?
Some
analysis of last month’s system marginal prices (and I’ll stand corrected if
that is not truly representative) showed an average price of €43/MWh, which
seems reasonable. There were a couple of half-hourly spikes of around €375/MWh,
and a few periods of a few hours where prices rose to between €100/MWh and
€150/MWh.
Analysis
of the corresponding weekly data for 2008 (a few months after the market
started) the average price was €65/MWh. Whilst there was only 1 really big
spike (€420/MWh), there were almost 3 times as many periods during the price
was elevated.
So,
not-with-standing the rather simplistic nature of this analysis, it would
suggest that consumers are getting cheaper electricity, that generators are
probably concluding that new capacity is not justified, and that the SEM
appears to be working.
Regulatory determinations
NZ – facilitating renewable generation
Introduction
The
Electricity Commission recently published a notice
of intention to approve Transpower’s
proposal (or more correctly, to approve the recovery of the efficient costs) to
reinforce several transmission lines in the Clutha and Waitaki areas of the
lower South Island. This article examines the proposed scope of work, the basis
for the Commission’s decision, and notes some wider recurring themes.
The proposed scope of works
The proposed work will allow
the Cromwell – Twizel section of the Roxburgh – Twizel A line (220kV) to
operate at a conductor temperature of 75oC, as well as duplexing the
following 220kV lines...
·
The Roxburgh – Livingstone section of
the Roxburgh – Islington A line.
·
The Aviemore – Livingston A line.
·
The Aviemore – Benmore A line.
·
The Roxburgh – Clyde section of the
Roxburgh – Twizel A line.
The reasons for the proposed works
Transpower
states that the reason for the work is two-fold...
·
To export electricity from proposed
renewable generation in the Clutha and Waitaki areas.
·
To provide additional security of
supply to Southland during dry years (by importing electricity from further
north).
Basis of the Commission’s decision
The basis
of the Commission’s decision is that...
·
In regard to the Grid Investment Test
(GIT)...
·
In regard to the agreed consultation
process, the Commission was satisfied that Transpower had complied.
The
Commission’s (signaled) approval means that Transpower can recover up to $197m
(in 2015 dollars) of costs from its customers.
The wider recurring themes
Apart
from focusing attention on what is probably one of the most beautiful areas of
New Zealand, this article cuts across several recurring Pipes & Wires
themes....
·
Regulatory approval of grid
investments.
·
Facilitating grid connection of
renewable generation.
·
Smart grids and pushing the boundaries
of existing assets (thermal upgrades).
·
Avoiding new CapEx by clever thinking
(duplexing).
Famous power struggles
The
electrical history of many cities and countries includes bitter struggles either
between public and private interests seeking exclusive rights to distribute and
sell electricity, or between competing private interests. This historical
interest series examines some of those struggles.
Private interests clash in Jerusalem
(1921)
Introduction
In
1914, on the eve of World War 1, the ruling Ottoman Empire granted a concession
to generate electricity from the Yarkon River near
Jerusalem to a Greek named Fukiya. However Fukiya died before any work began,
and the concession passed to another Greek, Euripides M. Mavromatis. Little is
known about either man, so little in fact that plans for a People In Power
article on Mavromatis had to be abandoned.
Mavromatis’ concession
Mavromatis’
concession extended for a 20km radius from the dome of the Church
of the Holy Sepulchre, and granted him sole rights to generate and
distribute electricity within that area as well as to generate from the Yarkon
River (the concession also included the right to supply electricity in a
similar manner to the city of Jaffa, and also to irrigate the Jordan valley but
those aspects of the concession are slightly outside of the scope of this
story). However, Mavromatis never actually built any generating plant, so his Jerusalem
District Electric Company (JDEC) effectively remained a shelf company.
The clash begins
When
the British occupied Palestine in 1917 they refused to recognise Mavromatis’
concession, with part of their argument being that Mavromatis had simply sat on
his concession and not actually done anything with it and another part being
that the Ottoman Empire no longer existed. This is where the story gets
interesting....
Readers
may remember from Pipes
& Wires #91 that in September 1921 Pinhas Rutenberg was
granted a concession from the British mandate to generate electricity from the
Jordan and Yarkon Rivers and in 1923 he founded the Palestine
Electric Company Ltd (now known as the Israel
Electric Corporation Ltd). Mavromatis understandably saw this as a breach
of his concession and sued the British government as the ultimate parent body
of the British mandate, hoping for compensation.
The clash escalates to the
International Court
In
what appears to be a hugely nationalistic battle, Greece took Britain to the
Permanent Court of International Justice in The Hague on Mavromatis’ behalf. In
a judgment of March 1925, the Court upheld Mavromatis’ agreement with the city
of Jerusalem but also confirmed that his concession only applied to the area
with Jerusalem.
Mavromatis sells his concession
About
a year after the Court ruling, Mavromatis sold his concession to the British
electrical company Balfour Beatty
who built a power station on Bethlehem Rd. Interestingly enough, the separation
of Jerusalem in 1948 led to a continuation of the disputes over the right to
generate and distribute.
Energy policy
Finland to build more nuclear stations
Introduction
Over
the past several year Pipes & Wires has been examining nuclear power, and
has noted a clear swing away from a widely held “no – never” position to a
“well – ok - if it will reduce emissions” position. Going beyond that, some
have even dared to suggest embracing nuclear power for its technical merits. This
article examines the recent approval of the Finnish government to build 2 more
nuclear stations.
Finland’s nuclear industry
Pipes
& Wires’ recent series on nuclear policies in Europe excluded Finland, not
for any sound reason, but just because I figured a change to South America
might hold readers interests a bit more. So – anyway – here we are back in
Finland.
Finland
currently has 4 nuclear stations which generate about 27% of Finland’s
electricity...
·
Two VVER 440 pressurised water
reactors (PWR’s) at the 975MW Loviisa power
station, which were commissioned in 1977 and 1980 respectively.
·
Two ASEA-Atom boiling water
reactors (BWR’s) at the 1,720MW Olkiluoto
power station, which were commissioned in 1978 and 1980 respectively.
The
government granted permission in 2002 for a 3rd reactor at Olkiluoto.
However this now is running significantly behind schedule and over budget, with
some doubts about the integrity of the welding.
The latest proposal
The
Finnish government recently announced its approval to build Finland’s 6th
and 7th reactors. These will be built by the utility TVO and Fennovoima (a
consortium including E.On) at either Pyhäjoki or Simo in northern Finland. A final decision on the exact
technology to be used is yet to be made, but the 3 most promising contenders
are...
·
The Areva advanced PWR
(rated at about 1,700MW).
·
The Areva advanced BWR
(rated at about 1,250MW).
·
The Toshiba advanced BWR (rated at
about 1,600MW).
All
3 of these contenders represent proven technologies.
The politics of it all
Although
the government has given its approval in principle to the reactors, the full
approval of parliament must be obtained. The government’s Green coalition
partner indicated that it would oppose the approval, however that would still
give the ruling Center
– National
– Green – Swedish
People’s government a majority of something like 117 to 83 in the
parliament.
Given
the difficulties with the 5th reactor, it will be interesting to see
how the 6th and 7th ones proceed.
Regulatory policy
US – a hiccup with smart metering
Introduction
Smart
metering is being encouraged by regulation in many jurisdictions, so criticism
of smart metering by law makers does seem ironic. This article examines a bit
of a hiccup with smart metering at California’s largest electric utility, Pacific Gas & Electric (PG&E) and
examines how some customers might actually get higher electricity bills.
What appears to be the problem ?
According
to state Senator Dean Florez,
the problem appears to be estimated electricity bills that are much higher than
what customers claim they owe. Florez claims to have received about a thousand
complaints, and further claims that thousands of customers may have received
inaccurate bills.
For
its part, PG&E has acknowledged that although several tens of thousands of
smart meters have encountered a range of problems, only 8 meters (out of
something like 5,500,000) had inaccurately reported energy use.
Let’s try to get to the facts....
The
facts appear to be...
·
PG&E has installed something like
5,500,000 smart meters.
·
About 23,000 meters were installed
incorrectly (about 0.4%).
·
The rather precise number of 11,376
meters failed to retain consumption data (0.2%). One would hope that if these
meters were really that smart they would display an error message rather than a
spurious reading, and PG&E would take the hit.
·
About 9,000 meters had trouble
connecting to the wireless network (0.16%). Again, one would hope that the
metering was actually smart enough to not transmit spurious readings.
·
Reportedly, only 8 meters had
inaccurately reported consumption data (0.00014%).
That
last figure doesn’t look too bad at all.
Some issues with metering
As I
see it, there tend to be several sources of metering (and billing)
inaccuracies...
·
The meter (yeah, yeah, the Ferraris
disc, back when I was a lad) runs fast, and records more kWh than what has
actually been consumed. This was a real hanging offence, so most meters were
manufactured and adjusted to run slow if anything to avoid compensation claims
from consumers.
·
The meter runs slow, and records fewer
kWh than what has actually been consumed. Back in the old days (ie. the
1980’s), power boards tended not to worry about this because it spared the
grief of consumer complaints. However, it did mean customers were paying less
for their electricity than they should’ve been.
·
The meter seizes totally, and ceases to
record consumption, and that somehow gets overlooked.
·
Some customer installations
(particularly secondary installations like farm pumps) never were metered and
just kind of got forgotten about.
·
The current transformers may have been
connected incorrectly. This normally only applies to larger commercial and
industrial customers, and usually creates a “multiple of 10” error which is
easy to spot.
·
Less than diligent meter readers who
estimate consumption instead of reading meters that are hard to get to.
·
Customers involved in “horticulture” who
disconnect their meter to avoid their high consumption attracting attention
(and who often forget to reconnect the meter for a few days each month to avoid
a nil reading that also attracts attention).
·
Transcription errors in the bill
compilation process.
I
guess one of the benefits of smart metering is that it would eliminate many of
these sources of inaccuracies, which have a distinct skew in favor of the
customer. So, understandably, customer’s bills could well increase if they had
a slow meter, a seized meter, or possible no meter.
US – smart grids encouraged by law in
Maine
Introduction
Smart
grids seem to be all around us at the moment, and the possibility that they
might help defer or avoid the impending wave of growth CapEx seems to make them
even more exciting. This article examines a Bill that was recently signed into
law in the US state of Maine to encourage smart grids.
What exactly is a smart grid
Essentially
a smart grid uses modern digital technologies to monitor and control electricity
demand. In some ways it can be thought of as “routing” electricity rather than
simply “broadcasting” it. Smart grids are likely to include many of the
following components...
·
Advanced meters.
·
Appliances that can switch on and off
in response to signals generated by the network.
·
Superconducting materials.
·
Embedded generation.
The Maine Bill
Bill
LD 1535 was introduced by Rep. Jon Hinck of
Portland, and sought to encourage the development of smart grids in Maine. The
Bill was unanimously enacted by the House of Representatives and then passed to
the Senate where it was signed by Governor
John Baldacci under urgency.
Key
features of the Bill include...
·
A recognition that Maine lacks a smart
grid policy, and faces electricity costs that are higher than other states with
which Maine competes with economically.
·
A recognition that security of
electricity supply is essential to economic growth.
·
An explicit recognition that the
urgency of this matter constitutes an emergency (hence the Governor’s signing
under urgency).
·
A policy of promoting smart grids that
is consistent with industry standards.
·
A requirement for the Maine Public Utilities Commission to
ensure that transmission and distribution upgrades requiring the Commission’s
approval have adequately considered smart grid technologies.
·
Provision for utilities to recover the
prudently incurred costs of implementing smart grids, including
Commission-approved grants to the University of Maine for smart grid research
unit.
·
A requirement for the Commission to examine
and report on the need for a smart grid company (essentially a company with a
proven record in the renewables sector) to be established in each distributors
service territory.
The
editor comments
Just a couple of comments from me to
finish off this discussion....
·
It will be interesting to see whether
the step of enshrining smart grids at an official policy level actually does
promote their roll-out, or if the commercial incentives of deferring or
avoiding CapEx are sufficient.
·
It is very encouraging to see the
linkage between secure electricity supply and economic growth being recognised
at policy level.
·
It will be interesting to see what the
level of “prudently incurred costs” gets set at.
People in power
A
couple of years ago Pipes & Wires featured the life stories of some blokes
born in the late 1800’s who shaped the electric power industry as we now know
it. Researching and writing those articles was a lot of fun, so I’m going to
write a few more (and if anyone wants an electrical pioneer to be researched
and included, pick here
to contact me).
The brothers Lewthwaite light up Banks
Peninsula
Early beginnings
Fred
Lewthwaite was born in 1880, closely followed by his brother Henzel in 1881
(there was also a younger brother Harry born in 1884 but he didn’t appear to
enter the electrical industry). It appears that Fred and Henzel were born near
Oxford in Canterbury, but around the time of Harry’s birth moved to Little
River on Banks Peninsula where their father John was a carpenter and farmer.
The family then moved to Cheviot in North Canterbury around 1895 when John
acquired 300 acres under a perpetual lease, but it is not clear if Fred and
Henzel followed the family.
Starting work at the Power Board
Fred
joined the Banks Peninsula Electric Power Board (now part of Orion) in May 1920 as assistant to the
famed John Templin after Templin’s previous assistant only stayed for a month.
Less than a year later in January 1921 Henzel joined the BPEPB as secretary.
The years go by
The
1920’s were times of considerable growth for the BPEPB, although it was hard
work amongst the rugged, sparsely populated Banks Peninsula area. It appears
that gifts of money, materials (blue gum poles) and labor contributed much to
the development, but despite this the BPEPB had to rely on the much-hated
provision of striking a rate over land to make up a revenue shortfall in 1930.
The
possibility of amalgamation between the Banks Peninsula, Springs-Ellesmere and
Malvern EPB’s surfaced every couple of years. Whilst the benefits of merging
appear to have been well understood, the potential loss of local identity and
the thought of the (relatively) dense Springs-Ellesmere EPB raising it’s
tariffs as part of an equalisation process gazzumped the process.
In
1944 the BPEPB asked the Christchurch MED to take over the Board, however the
MED was hesitant and the Minister of Public Works refused to allow it (from
memory, I think the Electric Power Boards Act did not allow for an EPB and an
MED to merge, only 2 EPB’s).
The later years
Fred
worked at the BPEPB’s Duvauchelle offices until his retirement on 31st
October 1956 after 36 years, after which he was granted 6 months paid leave to
compile a history of the BPEPB. Henzel worked at the Little River office until
he retired in July 1954 and then died suddenly in August 1956. Interestingly
enough, both brothers were well into their 70’s when they retired (scary
thought, that !!!).
Mergers
in the post-Lewthwaite years included the merger of Banks Peninsula and
Springs-Ellesmere in 1963 to form the Central Canterbury EPB, which
subsequently took in Malvern in 1965. The CCEPD and the MED finally merged in
1989 to form Southpower.
A bit of light reading…
Book review – “Connecting The Country”
Helen
Reilly’s latest book “Connecting The Country” is a history of NZ’s national
grid from 1886 to 2007 that interestingly enough splits into the development of
the AC and DC systems. Filled with photos, anecdotes and witty stories this is
a really worthwhile read.
Order
your copy from Transpower’s
web site … cost is $60 incl. GST.
Wanted – old electricity history books
If
anyone has an old copy of the following books (or any similar books) they no
longer want I’d be happy to give them a good home…
·
White Diamonds North.
·
Northwards March The Pylons.
·
Marlborough Will Shine Through.
Conferences & events
The following
training course will be run by Conferenz, and is targeted at newcomers to the
industry...
·
Fundamentals
of the NZ electricity industry – Wellington, 31st May – 1st
June.
The
following conference will be run by Conferenz...
·
Resilient
Infrastructure – Auckland, 30th June – 1st July.
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Disclaimer
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are of a general nature and are not intended as specific legal, consulting or
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& Wires may make forward looking or speculative statements, projections or
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