Electricity Authority decisions demonstrate High Court reasoning was incorrect

The Electricity Authority (EA) has been consulting on changes to electricity transmission pricing, removing the pricing principles under which distributed generation connects to the distribution network, and removing the avoided cost of transmission payments received by many distributed generators. No owners of distributed generation accepted the EA’s proposals regarding distributed generation, and the transmission pricing proposals received widespread condemnation from across the industry (accept from certain major industrial customers, who were set to benefit significantly because the Authority chose measures of “use” that would significantly favour those entities).

To everyone participating in the consultation process on the EA’s proposals it was evident that the EA had a pre-determined position. Consultation papers used terms like “subsidy” and “cross-subsidy” in a perjorative and political manner, using measures of “fairness” based on the EA’s heavily flawed analysis. Unfavourable responses to consultation were met by the Authority trying again, from a different angle, or by trying to slice off a smaller sliver of an issue that it might be able to win in isolation. The consultation process has been long, complicated, expensive for industry participants, and seemingly designed to wear everyone down.

Trustpower took exception to the EA’s pre-determined position, and filed an application for a Judicial Review in the High Court. On Friday 2 December 2016 the Court declined Trustpower’s application^[1], with the decision being made public on Monday 5 December.

In reaching his decision, Cull J stated:

The stage that has been reached in the process is that the [EA] has not made a final decision on the submissions it has received, but is still in the process of considering them.^[2]

Judge Cull went on to state:

It is also inappropriate for this Court to undertake a merits-based review of the [EA]'s consultation process, when the [EA] is currently undertaking an analysis of all the submissions... both as to substance and as to process, and has yet to reach a decision.^[3]

The EA gave the lie to the Judge Cull’s reasoning the very next day, announcing two decisions^[4] that had quite clearly already been made:

• First, the EA has decided not to progress the removal of the distributed generation pricing principles, a decision that was forced upon it given widespread condemnation of its proposals.^[5]
• Second, the EA has decided to progress the removal of ACOT payments.

The decision to remove ACOT is hardly a surprise, being a decision that the EA made clear when it first consulted on ACOT back in 2013.^[6] The decision was pre-determined and the EA was not going to let any amount of analysis stand in its way.

Endnotes
[1] Trustpower v Electricity Authority [2016] NZHC 2914. Available on the Electricity Authority website at http://www.ea.govt.nz/dmsdocument/21511.
[2] At 116(b).
[3] At 122.
[4] Electricity Authority, "Authority Decision on the review of DGPPs and ACOT", 6 December 2016. Available from this link.
[5] See the summary of submissions published by the EA.
[6] For more on the original consultation, see ASEC Report finds Benefits from Distributed Generation and ACOT Payments, 9 February 2014.

TPM Options Review

On 16 June 2015 the Electricity Authority (EA) released that latest in its series of working papers: the Transmission Pricing Methodology Review: TPM options working paper (the “TPM Options Paper”). It is understood that the EA intends the TPM Options paper to be the last of the working papers, with the results of the current consultation enabling it to move to selecting a specific TPM option to assess against the current TPM. In a somewhat unusual situation, ASEC prepared three responses to the TPM Options Paper:

• A report for the Independent Electricity Generators Association (IEGA);
• A report for Electra (a distributor) and King Country Energy (a small generator and retailer and member of the IEGA); and
• A letter from ASEC on the treatment of the Loss and Constraints Excess (LCE).

The EA’s proposals created sufficient alignment of interest between the parties that the three responses could be prepared without risk of arguing at cross purposes.

Traditional analyses of embedded generation are typically focussed on short-run effects, concerned to ensure that pricing does not provide incentives to avoid or reduce use of the current transmission system. A long-term view, on the other hand, suggests that this approach may not be correct and may result in being locked in to existing technologies and existing network structures.

The report for the IEGA develops a theoretical framework for embedded generation within the construct of a planner seeking to optimise the mix of local generation, local transmission, and remote generation for a distribution network. The same framework readily allows energy efficiency and other demand management initiatives.

Both the IEGA and Electra/KCE reports address a wide range of issues that arise with the various proposed TPM Options. Perhaps the greatest concern is that the allocation of the proposed Residual charge results in an under-allocation of approximately $52m to the directly-connected industrial customers, which will instead be paid by the consumers connected to distribution networks. The same allocations provide an incentive for larger industrial consumers to disconnect from distribution networks and connect to the transmission network.

The letter on the treatment of the Loss and Constraints Excess reinforces the submission made in March 2014. The EA proposes to credit the LCE that arises on Connection and Deeper Connection assets to the parties that pay for those assets, but credit the remainder of the LCE in bulk against Transpower’s revenue requirement. The treatment of LCE on Connection and Deeper Connection assets is appropriate, but the treatment of the remainder is not. The proposed TPM Options also include an “Area of Benefit” charge to recover the cost of specific transmission investments. The parties that pay for those new assets should also receive the LCE generated on those assets.

For more detail on these issues and more, see the relevant submissions:

• report for the Independent Electricity Generators Association;
• report for Electra and King Country Energy; and
• ASEC submission on the Loss and Constraints Excess.

ASEC Report finds Benefits from Distributed Generation and ACOT Payments

A new report by Andrew Shelley Economic Consulting Ltd (ASEC) finds that distributed generation (DG) provides significant benefits, and that Avoided Cost of Transmission (ACOT) payments made to distributed generation embedded within distribution networks also provide benefits. ACOT payments are made to generators embedded within a distribution network and which generate at peak periods, thereby avoiding transmission charges based on peak.

In November 2013 the Electricity Authority issued a "working paper" which, in essence, claims that there are little or no benefits obtained from distributed generation that is embedded within distribution networks, and indicating that such payments should be eliminated. Andrew Shelley Economic Consulting Ltd (ASEC) was retained by the Independent Electricity Generators Association (IEGA) to examine the Authority's analysis and, where relevant, to provide estimates of benefits derived from distributed and embedded generation and from ACOT payments themselves.