Commission consults on approving $36 million investment to maintain reliable electricity supply

The Commerce Commission has released its draft decision allowing Transpower to invest $36 million to replace ageing infrastructure and cater for increasing electricity demand in South Auckland.

Transpower, which owns and operates the national electricity grid, applied to the Commission in May 2020 to spend $36 million to invest in its Bombay-Otahuhu regional network by June 2023.

“Our draft decision is that this investment is needed to maintain a secure and reliable electricity supply to the Bombay-Otahuhu region,” Commission General Manager of Regulation Nick Russ said.

“The decision would allow Transpower to purchase two new transformers for the grid, as well as doing preparatory work to replace conductors from Otahuhu to Wiri.”

Transpower is currently developing its understanding of the likely costs of the conductor replacement. It intends to complete and recover the cost of the replacement by seeking an amendment to the Commission’s decision.

The Commission is consulting on its draft decision and will consider submissions before making its final decision.

Submissions on the draft decision are due by 17 December 2020 and cross submissions are due by 22 January 2021. The Commission expects to make its final decision by 19 March 2021.

Background

Transpower owns and operates the national high voltage electricity grid which moves electricity from where it is generated to where it is needed. Transmission charges make up about 10% of an average consumer’s power bill.

Transpower is regulated under Part 4 of the Commerce Act as it has a natural monopoly in the market for electricity transmission services.

The Commission regulates Transpower through an individual price-quality path (IPP). When setting each IPP (for regulatory periods of no more than 5 years), the Commission approves Transpower’s base capital expenditure allowance for each year the regulatory period covers. The current regulatory period runs from 2020 to 2025.

At any time, Transpower can submit a major capital expenditure proposal to the Commission seeking approval to invest in and recover the full costs of its investments from consumers for a project costing more than $20 million to enhance or develop the national grid.

If the Commission approves a proposal, Transpower can include the infrastructure costs in its regulatory asset base. Those costs can then be recovered as transmission charges according to the transmission pricing methodology (TPM).

In mid-2020, the Electricity Authority finalised guidelines to Transpower to develop a new TPM. Once approved, the new TPM would apply to Transpower’s future recovery of the costs of the project, if the Commission finalises its draft decision.

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