Commission consults on Transpower proposal to invest in South Auckland network

The Commerce Commission has released for consultation a draft decision allowing Transpower to spend an additional $14.59 million upgrading its transmission network to meet increasing demand for electricity in South Auckland.

The proposed amount is less than the $15.8 million Transpower requested to replace conductors on the Otahuhu-Wiri transmission line and enhance the towers and foundations required to support the new conductors.

Commission Deputy Chair Sue Begg said the Commission’s role as a regulator is to ensure that Transpower invests appropriately in its transmission network for the long-term benefit of electricity users and that it feels the lower amount is sufficient for the required work.

“The conductors on the Otahuhu-Wiri transmission have deteriorated to the point that electricity supply in South Auckland would be at risk if the required work is not done,” she said. “We believe that this additional investment is necessary to ensure that the network continues to meet the rapidly growing demand for energy in the area. Before we make a final decision, we are interested in hearing the views of other stakeholders.”

The proposed investment is in addition to $36 million already approved by the Commission on 19 March 2021 for two new transformers in the Bombay-Otahuhu region. Transpower applied on 14 May to amend the outputs of that approval because when it submitted the proposal it had not completed its investigation of the scope of reconductoring needed on the Otahuhu-Wiri transmission line. Its assessment identified numerous conductors that needed to be replaced to ensure continued safe operation but that were outside the scope of its normal replacement programme.

The Commission is seeking submissions from interested parties on its draft decision to approve the additional investment. Submissions close at 5pm on 10 August 2021. Instructions for submitters are in the draft decision paper on the Commission’s website.

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) covering a period of no more than 5 years. The IPP sets a revenue cap and quality standards for Transpower. A large component of the IPP’s revenue cap is Transpower’s base capital expenditure allowance for each year of a regulatory period. 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).

If the Commission approves a proposal, but Transpower determines there is a more suitable output than what it proposed or, as in this case, that a further output is needed to meet the investment need, Transpower can apply to the Commission for an output amendment.

In mid-2020, the Electricity Authority finalised guidelines to Transpower to develop a new Transmission Pricing Methodology (TPM). The Commission is also planning to seek feedback on a proposal to allow Transpower to pass on to consumers the approximately $5 million it has spent so far in developing the TPM.

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