The Commerce Commission has approved Transpower’s proposal to recover up to $143 million of investment to manage voltage stability in the Waikato and Upper North Island region.

Transpower submitted a major capital expenditure proposal to the Commission in December 2019 for the first stage of a two-stage project related to the anticipated closure of major generation plants in the Waikato region. These closures could cause voltage management issues in Auckland and Waikato, particularly as the population grows and peak electricity demand increases.

Deputy Chair Sue Begg said the Commission agrees with Transpower that without this investment there would be an unacceptable risk to customers and the power system if faults occurred in the region during periods of high demand. This underpinned the Commission’s draft decision in June to approve the proposal and was echoed by stakeholders in their submissions.

“We conducted a thorough evaluation of the proposal to ensure that it is appropriate and will deliver significant benefits to consumers by improving the resilience of the electricity system. We are grateful to stakeholders for their considered feedback on our draft decision, which has informed our final decision today,” Ms Begg said.

“The impact of COVID-19 and the announced closure of the Tiwai aluminium smelter in Southland adds some uncertainty to forecast electricity demand, how soon the investment will be needed, and the potential costs of delivering the project.

“However, we consider the need for this investment remains. We’re also comfortable that our final decision gives Transpower the flexibility through an incentive scheme and extended delivery timeframe to manage uncertainty and ensure that the money is invested efficiently.”

The $143 million investment will increase transmission charges for some consumers.

“While we recognise that this will have some impact on consumer bills, the investment is needed to make sure the lights stay on and to safeguard the future stability of electricity supply to the region,” Ms Begg said.

“As stakeholders requested, Transpower is also continuing to explore the scope for alternative solutions to meet the investment need. This includes grid-scale batteries that could defer more expensive investment in equipment. Transpower has committed to seeking an amendment to our final decision if it identifies a better alternative, and we expect it to follow through on that.”

A copy of the final decision paper can be found on the Commission’s website.

Background

• Transpower owns and operates the national grid – the high-voltage transmission network connecting generation plant with towns and cities across New Zealand.

• The Commission seeks to promote the long-term benefit of consumers of regulated services by regulating such services under Part 4 of the Commerce Act. The regulated services under Part 4 include electricity transmission services provided by Transpower.

• 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 2020 to 2025.

• Transpower may at any time submit a major capital expenditure proposal to the Commission seeking to invest in and recover major capital expenditure. The rules relating to Transpower’s major capital expenditure (capex) projects are set out in the Transpower Capital Expenditure Input Methodology (Capex IM) Determination.

• Major capex projects are defined as those that have an expected cost greater than $20 million, and are for new assets or upgrades that enhance or develop the transmission grid. They do not include ‘like for like’ asset replacements.

• The Capex IM requires Transpower to obtain the Commission’s approval for major capex projects in order to recover the full cost of its investments in the national grid from consumers. Projects are approved with a maximum allowance set for the cost of the works carried out, and a list of outputs that the project must deliver.

• The Commission may approve or decline a major capex proposal from Transpower. If the Commission approves a proposal, Transpower may, after commissioning the relevant assets and equipment, include the costs in its regulatory asset base and then recover those costs as transmission charges allocated according to the transmission pricing methodology (TPM).

• If, after the Commission approves a major capex proposal, Transpower identifies a better solution, Transpower must apply to the Commission for an amendment to the approved outputs to provide for the better solution.

• The Electricity Authority has recently finalised and issued guidelines to Transpower to develop a new TPM. Once developed and approved, the new TPM will apply to Transpower’s future recovery of the costs of this project.

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