23 March 2017

 

Welcome to this Special Market Brief, the Electricity Authority’s update on regulatory and market developments.

 
 

Contents

 
 
 
 
 
 
 
 

Transmission Pricing Methodology: revised cost benefit analysis

 
 

Oakley Greenwood (OGW), the Authority's economic advisor, has revised the cost benefit analysis (CBA) of the Authority’s Transmission Pricing Methodology (TPM) proposal. 

The revised CBA estimates total expected net benefits for the proposal of $241.9m, in present value terms, from a previous value of $203.3m. 

OGW prepared a CBA for the Transmission Pricing Methodology: Second Issues Paper (May 2016), and for the Transmission Pricing Methodology: Second Issues Paper: Supplementary Consultation (December 2016). In February 2017, an error was discovered in the calculation of one of the benefits in the CBA. 

The error related to the expected benefit from removing the South Island Mean Injection (SIMI) charge, which recovers the cost of the High Voltage Direct Current (HVDC) link. OGW has now revised its calculation. OGW has included a terminal value adjustment to its model, reflecting submissions on the TPM: Second Issues Paper. OGW revised its estimate of benefits from removing the SIMI charge from $13.7m to $52.3m (in present value terms). 

OGW also provided an additional sensitivity analysis in relation to its estimate of benefits from ‘more efficient co-investment in generation and transmission services’. The sensitivity calculates the impact of including a terminal value adjustment in the model. The estimated net benefits under the sensitivity are $164.6m, in present value terms, which is an increase of $71.9m from the previous estimate of $92.7m, the calculated net benefit for this category in the second issues paper and supplementary consultation paper.

The revised calculations are available on our website.

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TPM reminders

 
 

Cross-submissions on the valuation method for determining the total and annual amount to be recovered under the proposed area-of-benefit charge for an investment close at 5 pm on Friday, 24 March 2017.

OGW are running an online ‘Cost benefit analysis calculation’ Question and Answer session on Tuesday 28 March via an email group.

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