Second Issues paper
The Authority has decided to advance the TPM review by developing a second issues paper to set out the process for development and approval of a new transmission pricing methodology. The second issues paper will take into account submissions and cross submissions on the October 2012 issues paper and additional information provided through the TPM conference held in Wellington on 29-31 May 2013, plus the working paper process.
It is not envisaged that a second issues paper will be released by June 2015.
Prior to developing a second issues paper, the Authority intends to develop one further working paper (an options working paper) that will discuss options for the combination of charges that could be proposed in the second issues paper. The options working paper, along with earlier working papers and submissions, will form a key input into the second issues paper. The Authority has produced the following working papers:
- Approach to cost benefit analysis of the TPM proposal (published 3 September 2013) – This working paper outlined the Authority’s proposed methodology for the cost benefit analysis in the next issues paper. (Submissions closed 15 October 2013.)
- Definition of sunk costs (published 8 October 2013) – This working paper examined the extent to which the costs involved in the provision of electricity transmission services are actually “sunk”. (Submissions closed 19 November 2013.)
- Avoided cost of transmission (ACOT) payments for distributed generation (published 19 November 2013) – This working paper investigated the benefits and costs that result from payment of ACOT. This paper also set out to determine whether or not ACOT payments to date reflect actual avoided costs of transmission. (Submissions closed 31 January 2014.)
- Use of loss and constraint excess (LCE) to offset transmission charges – (published 21 January 2014) This working paper examined submitter suggestions that the proposed use of LCE to offset transmission charges would distort the otherwise efficient wholesale market signals. (Submissions closed 4 March.)
- Beneficiaries-pays approach – (published 21 January 2014) – This paper examined options for applying a beneficiaries-pays charge. (Submissions closed 25 March 2014.)
- Connection charges – (published 6 May 2014) – This working paper examined whether the pool charging approach for transmission connection assets is efficient and whether there is potential for connection assets to be inefficiently classified as interconnection assets. (Submissions closed 24 June 2014.)
- Long Run Marginal Cost (LRMC) (published 29 July 2014) – This working paper examined whether LRMC charges could be designed so as to provide sufficiently accurate price signals to promote efficient operation of, and investment in, the electricity industry; would complement the signals provided by nodal pricing in the wholesale market; would be practicable within a regulatory environment. (Submissions closed 23 September 2014.)
- Problem definition (published 16 September 2014) – The problem definition working paper focuses on problems with the TPM in relation to interconnection and HVDC assets, and the prudent discount policy. (Submissions close 28 October 2014.)
Additional working papers may be identified as work progresses. Details of any additional working papers will be made available on this web page.
Static Reactive Support
In July 2013 the Electricity Authority announced that it was considering advancing work on a new charge for static reactive support (SRS) ahead of its package of transmission pricing policy changes
The concept of a charge for SRS was previously signalled by the Transmission Pricing Advisory Group. Introducing such a charge has the intention of encouraging parties to invest in equipment to manage their reactive power use.
The Authority has decided not to advance an SRS charge separately at this time. This is because upward trending power factors suggest that management of reactive power has improved (see Figure 1). This improvement has reduced the net benefit of bringing forward work on the SRS charge such that the net benefit no longer offsets the disruption it would cause to the Authority’s work on the overall transmission pricing package.
Figure1: Improving power factors in the Upper North Island and Upper South Island regions
While the Authority has determined there is a clear benefit from introducing a charge for SRS , the benefit of advancing the charge separately is no longer clear, particularly when the incremental costs of a separate consultation process are taken into account. These costs would include: the Authority’s consultation on revised transmission pricing guidelines, Transpower’s consultation on a revised Transmission Pricing Methodology, and separate changes and associated consultation to the Benchmark Agreement. The Authority is also mindful that progressing SRS in advance of any other transmission pricing policy changes could disrupt the timely progression of any other TPM changes.
The Authority considers that the improvements in power factors since 2011 may have occurred in anticipation of the SRS charge coming into effect. In recent times, some lines companies have introduced charges for reactive power draw on their distribution lines which has created an incentive on large consumers to invest in static reactive support.
The Authority intends to advance changes to SRS as part of the overall TPM package. While power factors are improving, the Authority considers that there are still likely to be net benefits from changes to SRS that provide a price signal that ensures that those whose activity necessitates investment in SRS equipment in the transmission network pay for the costs of this.
Assistance with the TPM
The Authority engaged Sapere Research Group (Sapere) in 2011 for a fixed term contract to assist the Market Design team (Retail and Network Markets) with Code development and administration, including in relation to Part 12 of the Code.
The contract is non-exclusive and the Authority and Sapere have agreed arrangements for managing any conflicts or potential conflicts arising from past or concurrent work by Sapere for other parties. In particular, the Authority and Sapere have agreed that Sapere staff undertaking work for the Electricity Networks Association (ENA) will be excluded from the work undertaken for the Authority, and will not have access to files relating to that work, because of the potential for ENA work to overlap with the work that the Authority may ask for from Sapere.
Staff from Sapere are assisting the Authority with aspects of the transmission pricing methodology (TPM) review. The Authority understands that the Sapere staff working for the ENA may assist the ENA with its submission on the TPM review issues and proposal consultation paper. In addition to the existing arrangements for managing conflicts, the Authority will ensure that the ENA submission on the TPM review will be considered by the Authority without any comment or input from the Sapere staff assisting the Authority.