Next steps for Authority's TPM review
The Electricity Authority has released the next steps for its review into transmission pricing guidelines.
The guidelines provide direction for the transmission pricing methodology (TPM) Transpower uses to charge its customers in order to recover costs associated with building and operating the national transmission grid.
The Authority has in the past year reviewed all aspects of its work on transmission pricing and the Board is now in a position to indicate the next steps with the project.
Our next step, which we are already working on, is to prepare a formal proposal for consultation.
We’ve been thinking about a benefit-based approach to charging and so our next proposal is likely to include that approach.
What we are thinking will form part of our proposal for revised TPM guidelines
TPM charges recover the costs that Transpower incurs building and operating the national transmission grid.
While we haven’t made any final decisions, we want stakeholders to understand more about our current thinking to provide an indication of our likely direction while we continue to prepare the document setting out our formal proposal.
At this point our focus is to provide a high-level update to signal where we are heading on the TPM review. The following points outline the main charges we currently see as being required by our proposal for revised TPM guidelines.
- Benefit-based charge: those who benefit from transmission investments pay for them and those that don’t benefit don’t pay. This means the amounts paid are based on the net benefits transmission customers are expected to receive from transmission investments. We expect to propose the benefit-based approach for all future investments and at least some recent major transmission investments and the HVDC. We are considering pragmatic options for the latter category of investments.
- Connection charge: transmission assets that connect a generator or consumer to the rest of the national grid are paid for by that party. This charge would remain similar to the current charge but with minor amendments to improve it.
- Residual charge: designed to pick up remaining costs and spread these out widely. We expect this charge to be allocated in a way that makes it hard for transmission customers to avoid paying their share and shifting it to others.
There will be additional components that go into our final proposal. For example, we’re considering a long run marginal cost charge, which maybe included if our analysis shows there is a long-term benefit to consumers from adding it.
To further our aim to be pragmatic, we will also consider transitional arrangements when the likely impacts have been modelled.