Securing our Energy Future Draft RCP3 Transpower Proposals Meridian Submission

Transcription

1 31 August 2018 Transpower RCP3 Submissions PO Box 1021 Wellington By Securing our Energy Future Draft RCP3 Transpower Proposals Meridian Submission Meridian appreciates the opportunity to submit on Transpower s draft proposal for Regulatory Control Period 3 (RCP3) extending from 2020 to As is apparent from our responses to consultation questions attached, Meridian is yet to reach a final view on the draft proposal. As such, our submission focuses on discussing points in need of additional clarification and additional supporting details that are required. Meridian will over coming months look to refine its views as Transpower s proposals are further consulted on by the Commerce Commission. If you have any queries regarding our submission please get in touch. Yours sincerely Alannah MacShane Regulatory Analyst DDI alannah.macshane@meridianenergy.co.nz Meridian Energy Limited Level 1, 33 Customhouse Quay Phone PO Box Fax Wellington New Zealand

2 Appendix A Responses to consultation questions Question 1: Our view of the future has implications for how we plan for and maintain the National Grid. Do you agree with our assessment of New Zealand s energy future? If not, what other factors should we be considering when planning for the future of the grid? Meridian supports Transpower sense-checking its proposal against a forward-looking view. We are also supportive of Transpower adopting as broad areas of focus the potential longer term for increased deployment of new technologies and increased electricification of transport and wider industries. This must not detract, however, from what is pertinent to the RCP3 period and matters over which there is more certainty. Meridian would like to see as part of this greater emphasis on grid utilisation and achieving an appropriate security / cost balance. It is also Meridian s firm preference that Transpower adopts a prudent approach allowing it to react as the sector evolves, rather than locking-in early, pre-emptive adjustments now. Question 2: We would welcome your views on our Enhancement and Development forecasting approach and assessment of the uncertainties. Meridian does not agree that proposed transmission pricing methodology changes are relevant to the RCP3 considerations at hand. In particular and contrary to Transpower s assertions, Meridian sees no reason to suggest that transmission pricing changes could bring forward the need for additional grid investment. Question 3: We ve identified key challenges for the grid through RCP3. We are interested in your views regarding these, or other challenges you consider important. The step change in new connections predicted by Transpower s Te Mauri Hiko Energy Futures work 1 provides additional reason to focus on labour constraints. Meridian has commented previously on the importance of Transpower appropriately balancing its wider work (in administering the Transmission alternatives scheme, for instance) to ensure adequate resourcing for future connection requirements. 2 See also our Q1 response. 1 Refer for further details Transpower s Te Mauri Hiko Energy Futures report available: %20Te%20Mauri%20Hiko%2011%20June%2718.pdfs which estimates upwards of 900 MW in installed capacity may require connecting by Refer for further details Meridian s 10 August 2018 Transmission Alternatives Engagement Process submission. 2

3 Question 4: We would welcome your views on our expenditure plans for RCP3 and their revenue impact. A significant component of estimated operating spending overall, the $87 million forecast insurance costs an increase of 28 per cent on RCP2 costs is indicated by Transpower as requiring further assessment once expert actuarial advice is obtained. 3 We request this advice is made available to assist stakeholders in formulating their views. As detailed in our Q18 response, Meridian supports having reconductoring projects valued in excess of $20 million subject to separate approval and extensive consultation potentially as listed projects. The remaining c. $212 million proposed for reconductoring works, and other residual aspects of Transpower s capex proposals, will be further considered by Meridian in the later stages of consultation. To inform these assessments, we request further details are provided on the regional areas these projects will affect. Question 5: Do you think the proposed service performance targets are appropriate for RCP3 in the context of the expenditure plan? Please explain your rationale, and any changes you would propose. Meridian has commented previously that: Introducing an additional level of differentiation needs to be further investigated for generators targeting economic consequences for the GP1 & GP2 measures. The proposed return to service time AP3 measure should be supplemented with an additional target aimed at timely market communication. 4 In what is a modified approach from Transpower s June 2018 proposals, we note that Transpower is now proposing to have AP3 apply as a non-revenue linked target. From what we understand, this is considered necessary so that a statistically meaningful baseline can be established. 5 Meridian requests Transpower provides further details of the analysis that supports this view. Currently still under consideration by Transpower, Meridian s preliminary feedback is that % energy availability of HVDC AP1 incentive penalties should be proportional to total related capex amounts. Where the capability of an asset is expected to materially increase as an outcome of significant capex, penalty amounts need to be adjusted commensurately to ensure suitably strong performance incentives remain. Setting penalty values at around 5% of total capex from the RCP2 period we consider could achieve this. 3 Discussed page 31 of Transpower s consultation paper. 4 Refer Meridian s 28 June 2018 Transpower Service and Asset Health Engagement Paper 3 submission. 5 Discussed page 4 of Transpower s July 2018 Grid output measures refresh engagement paper 3 - Stakeholder feedback summary, available: pdf 3

4 Question 6: Do you think the proposed asset health targets are appropriate for RCP3 in the context of the expenditure plan? Please explain your rationale, and any changes you would propose. Meridian has no specific changes to propose. Question 7: Do you agree with how we ve applied the effectiveness ratios in the setting of asset health targets? Please explain your rationale, and any changes you would propose. Meridian has no concerns at this stage with the ratios proposed. Question 8: We would welcome your views on any other areas that could be suitable for price quality testing. Meridian has no specific suggestions. Question 9: We would welcome your views on the quality indicators we have used. Are they clear, and are we missing anything important? The indicators appear reasonable from Meridian s perspective. Question 10: What are your views on the balance between price and quality for RCP3 and beyond? In part this will depend on what we are able to discern in the way of practical options that could enable a tighter price-quality position to be maintained. Refer also our Q12 response. Question 11: Are there any areas where you think Transpower should avoid or embrace increases or decreases in quality (e.g. environmental impact of operations, innovation and technology adoption, network communications, distributed generation support)? Given the scale of market disruption that could be created, our initial view is that any lessening of standards for network communications should be avoided. Question 12: What options are available to Transpower s customers to mitigate risks and, in doing so, support Transpower to enable a tighter price-quality position? It is difficult to determine what the available options are from the high-level information provided. Meridian will look to other submissions to inform our views. Question 13: Would you prefer a smoothed transmission revenue path? Please explain your rationale. Meridian has no firm preference at this stage. As per our Q14 response, we request further details are provided on the implications for HVDC-related revenue. 4

5 Question 14: Do you have any preferences for how we smooth revenue? Please explain your rationale. Given these projects are subject to separate approval, we agree unapproved projects should be excluded prior to calculating the smoothed revenue path. In terms of the proposal to base the revenue growth from the previous control period, Meridian would like to understand more about the way this could impact on the predicted HVDC revenue path. We ask that Transpower provide the HVDC equivalent of the chart on page 54 of the consultation paper illustrating the potential effects of smoothing for HVAC revenue. Question 15: Would you prefer wash-ups and incentive adjustments to be carried across control periods or applied annually? Please explain your rationale. Meridian would like to understand more about: the likely effect a modified approach would have on the revenue path, relative to what the current process of annual adjustments would imply; and how smoothing will be achieved - by applying an even split for each year of the following control period, or some other approach? In line with Transpower s proposals, we would expect information on wash-ups and incentive amounts to continue to be made available each year under either approach. Question 16: We would welcome your views on the principles we should apply to designing RCP3 service performance incentives. As previously indicated 6, Meridian believes there needs to be greater visibility over Transpower s performance against its service performance targets. This could be achieved, for example, by having performance regularly reported on in monthly industry newsletters and in a prominent and easily accessible part of Transpower s website. Question 17: We would welcome your views on the principles we should apply to designing RCP3 asset health performance incentives. Meridian has no specific suggestions. 6 Refer Meridian s 28 June 2018 Transpower Service and Asset Health Engagement Paper 3 submission. 5

6 Question 18: Do you support our proposed use of the listed project mechanism for large reconductoring projects? Please explain your rationale. Leaving out important details on different options for treatment and their associated implications, the consultation paper does not provide adequately detailed analysis for Meridian to provide a firm view. With the four specific projects all predicted to cost in excess of $20 million, a separate approval process needs to be followed. The Otahuhu Whakamaru A & B Reconductoring project in addition has potential associated market impacts that will need to be considered and consulted on in parallel. Whether the projects should be subject to consideration as listed projects or major capex projects is, however, not clear. As a related general point, Meridian considers the value of Transpower s capex (an estimated $1.34b, under Transpower s draft RCP3 proposal) warrants significantly more transparency over approval methods and their implications. With this information currently needing to be pieced together using the Transpower, Capital Expenditure Input Methodologies and other technical documents, what is needed are a series of clear, and more accessible diagrams detailing the approvals / consultation processes for base capex, major capex, and listed projects. We request Transpower investigates this further. Question 19: Would you prefer use of the listed project mechanism for HVDC Pole 2 life extension work? Please explain your rationale. Leaving out important details on different options for treatment and their associated implications, the consultation paper does not provide adequately detailed analysis for Meridian to provide a firm view. Meridian s understanding is that the potential options are: (1) Applying the listed project mechanism; (2) Applying the low incentive rate mechanism; or (3) Having the major capex approval process apply. 7 The c. $60 million estimated value of this project warrants consideration and consultation using a separate process. Meridian therefore does not support the low rate incentive mechanism being applied. Whether the project should be subject to consideration as listed projects or major capex projects is, however, not clear. See also our Q18 response. Question 20: We would welcome your views on the merits of addressing reconductoring delivery risk using the low incentive rate mechanism instead of deferral. Meridian s view is that the projects require further consideration and consultation. As such, we do not support having the projects instead subject to the low rate incentive mechanism. 7 While we are unsure why this would be the case, it is not clear from Transpower s page 61 statement that as an alternative to listing this [HVDC Pole 2 life extension] we could instead use a low incentive mechanism whether this would still leave open the option of having the project treated as a major capex proposal if a listed project approach was not pursued. 6