The Commerce Commission has released its draft decision proposing to approve $23.5 million for Transpower to replace the conductors (overhead wires) and strengthen the structures of a 9.5km section of its high voltage direct current (HVDC) transmission network in Wellington.

The Commission also proposes to approve funding for Transpower to pay for the expected additional electricity reserve costs of $2 million it will incur as part of this project.

Transpower sought approval from the Commission after assessing the aging wires in Churton Park and concluding they were corroding and would need to be replaced in the short term.

Transpower’s HVDC network transmits bulk electricity between the North and South Islands. Its main use is to transmit electricity generated from hydro dams in the South Island to where it is consumed in the North Island.

Deputy Chair Sue Begg said the Commission agreed the wires on the Churton Park section of the line, built in 1992, were nearing the end of their serviceable life and needed to be replaced.

“Our draft decision is to approve $25.5 million to cover the expected cost of this project. Maintaining a high level of reliability in the HVDC network is critical to the efficiency of New Zealand’s electricity market. Transpower plans to start this work in late 2019 as this timing would minimise the impact of reduced transmission capacity under most hydrological scenarios,” Ms Begg said.

“Transpower’s proposal to align the replacement of the affected wires with work already planned on one of the HVDC converter stations would also be the least disruptive to the electricity market.”

Transpower may revise the planned date for starting the work if it faces unfavourable hydrological conditions, a grid emergency, or if system security is challenged.

The cost of the project would be added to Transpower’s base capital expenditure allowance and recovered from its HVDC network customers. The expected impact on the average consumer is less than three cents per month.

A copy of the Commission’s draft decision can be found here.

Submissions close on 5 September 2018. Cross-submissions are to be provided by 12 September.

Background

The Commission regulates the electricity transmission line services that Transpower supplies to consumers through an individual price-quality path (IPP) under Part 4 of the Commerce Act. When setting the IPP, we approve Transpower’s base capital expenditure allowance for each of the 5 years the regulatory period covers – the current period runs from 2015 to 2020.

Transpower’s regulatory regime allows for separate approval for ‘listed projects’, where forecast costs and timing are uncertain. The Churton Park HVDC project is the second listed project application that Transpower has submitted.

In assessing a listed project, the Commission reviews whether the project is necessary and whether Transpower’s proposed solution is the most reasonable and cost-effective. The Commission may then, at its discretion, approve the amount of funding it considers necessary to undertake the work, and add this to Transpower’s base capital expenditure allowance for the remaining years of its regulatory period.

Reserve costs

Reserves in the electricity market are required to protect against a sudden failure of a large generating plant or the HVDC link. The reserve costs are paid by electricity generators and Transpower as the owner of the HVDC network. These costs are allocated to generators in proportion to the quantity of electricity they inject into the grid, and to Transpower in proportion to the quantity of electricity the HVDC transfers. When Transpower undertakes this reconductoring project, the HVDC’s transmission capacity will be reduced, and Transpower will be exposed to higher reserve costs.

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