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Transmission pricing methodology

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Section IV of part F of the Electricity Governance Rules 2003 sets out a process whereby a transmission pricing methodology (TPM) is recommended to the Minister of Energy for inclusion into the Rules as a schedule to section IV of part F.  The purpose of the TPM is to ensure that the full economic costs of Transpower’s services are allocated in accordance with the principles set out in rule 2 of section IV of part F.

27 May 2005 Proposed TPM

On 27 May 2005 Transpower submitted its proposed transmission pricing methodology (Proposed TPM) to the Commission . 

The Commission is obliged to follow the process outlined in rules 7 and 8 of section IV of part F of the Rules, in order to make a recommendation to the Minister of Energy on the TPM to be applied by Transpower.

The Commission asked the Transmission Pricing Advisory Group (TPAG) to review the Proposed TPM.  TPAG was asked to provide its view to the Commission as to whether the Proposed TPM contained sufficient information to enable the evaluation of its compliance with rule 7.2.1, which requires consistency with:

  • any determination made under Part 4A and sections 70 to 74 of the Commerce Act 1986;
  • the pricing principles set out in rule 2 of section IV of part F and their application and interpretation set out in rule 3; and
  • any guidelines published pursuant to rule 6.2 of section IV of part F (published by the Commission on 24 December 2004).

On 22 June 2005 the TPAG completed its review of the Proposed TPM (as submitted to the Commission on 27 May 2005) and presented a report “Sufficiency of Information Regarding the Proposed Transmission Pricing Methodology” to the Commission's Board.

The TPAG recommended that the Commission seek further information from Transpower in accordance with the questions set out in Appendix A of the TPAG report.

The Board considered the TPAG report as part of its assessment of the adequacy of the Proposed TPM and requested further information from Transpower.

HVDC guidelines reconsideration

Following a judicial review instigated by Meridian Energy Limited and Contact Energy Limited, the Commission was directed by the High Court to reconsult on the guidelines published in December 2004. 

In his decision of 29 August 2005 in the High Court case Contact Energy Limited and Meridian Energy Limited v Electricity Commission and Transpower New Zealand Limited, CIV-2005-485-624, MacKenzie J:

  • set aside the 2005 Guidelines;
  • directed the Commission to reconsider the matters dealt with in paragraphs 15 and 16 of the Guidelines (allocation of HVDC link charges) and such other parts of the 2005 Guidelines as the Commission may consider necessary as a consequence; and
  • required the Commission, in undertaking that reconsideration, to further consult in accordance with Rules.

This required the Commission to repeat the process set out in the Rules, and as required by rule 4, the Commission published a further issues paper on 11 November 2005 (Second Issues Paper).  The Second Issues paper set out the Commission’s reconsideration of the HVDC guidelines and sought submissions on the reconsideration and proposed revised guidelines.

The Commission published its revised guidelines (Guidelines) incorporating its reconsideration relating to the HVDC link under rule 6.2 for Transpower to follow in developing the TPM in March 2006 .  At the time, the Commission confirmed the process for the development of the TPM it had previously published in February 2005.

22 June 2006 Proposed TPM

Following the reconsultation on those Guidelines for TPM relating to the HVDC link and publishing of the Guidelines, the Commission wrote to Transpower on 24 March 2006 confirming that the process for preparing a TPM continued to be appropriate.

The Commission received a project plan from Transpower on 19 April 2006 and received the Proposed TPM on the 22 June 2006.  

The Commission has determined that Transpower has provided sufficient information (in terms of rule 7.3) for the Board to make an informed assessment of the matters referred to in rule 8. This was determined based on the Proposed TPM, the supplementary material provided by Transpower on 22/23 June 2006, and the additional material provided by Transpower on 10 July 2006 (available on the Transpower website http://www.transpower.co.nz/?id=4546), and assisted by TPAG.

The Commission considers the Proposed TPM adequately conforms to the requirements of rule 7.2.1 and has therefore approved it under rule 8.1.1.

Timetable for implementation of TPM

The Commission decided to revisit the issue of consultation on and implementation dates of not only the Proposed TPM but also for the related Benchmark Agreement and Interconnection Rules proposals.

The Commission considered that reconsidering the process was of sufficient importance to invite submissions.  The consultation closed on 10 August 2006.

The Commission has completed its consideration of submissions and made a decision on the timetable for consultation and implementation (the implementation date for the TPM is subject to consultation with Transpower in accordance with rule 8.5 of section lV of part F).

Consultation paper on Proposed TPM (submitted 22 June 2006)

On 1 November 2006, the Commission published its transmission pricing methodology   consultation paper (Consultation Paper) and the Proposed TPM pdf [358 KB]

The purpose of the Consultation Paper is to consult on the Proposed TPM in accordance with rule 8.2 of section IV of part F, which requires the Board to publish the Proposed TPM as soon as practicable; and with a date by which submissions must be received by the Commission.

The Consultation Paper:

  • sets out why the Commission considers that the Proposed TPM adequately conforms to the requirements of rule 7.2.1 of section IV of part F;
  • asks submitters to comment on the Commission’s assessment of the Proposed TPM and the Proposed TPM itself; and
  • discusses practical alternatives to the proposals, where appropriate, consistent with requirements of the Electricity Act 1992. 

The Consultation Paper should be read in conjunction with Transpower’s Proposed TPM, Transmission Pricing Methodology Supplementary Material and Transmission Pricing Methodology Response to Request for Additional Information.

The Commission invited submissions on the Consultation Paper, including responses to the specific questions raised in the paper.

Public briefings on the Proposed TPM

The Commission held a series of public briefings during late November 2006 on the Proposed TPM with Transpower.

The topics for the briefings were:

  • the key technical aspects of the proposed TPM (presented by Transpower);
  • a description of the regulatory framework applied in the assessment of conformity to the rules (presented by the Commission);
  • the process going forward (presented by the Commission).

Cross-submissions

As previously noted in the Consultation Paper, the Commission gave parties the opportunity to make cross-submissions on the Consultation Paper.

Summary of submissions and provisional response paper

The Commission has completed its summary of submissions and provisional response paper on the proposed TPM, submitted by Transpower New Zealand Ltd (Transpower) on 22 June 2006.

Erratum Correction to paragraph 6.6.13  (a)  of page 99 of the Commission document Transmission pricing methodology summary of submissions and provisional response paper for the purposes of consultation under rule 8 of section IV of part F of the Electricity Governance Rules 2003

published 11 April 2007 . 

"Accordingly, the Commission considers that the proposal is too vague and requires tightening in order to provide certainty for offtake customers to effect the objectives of the proposal.  The Commission considers that the Proposed TPM should be amended to require the CMP and the peak measurement period to be the October August to September period immediately prior to the start of the pricing year.  The Commission also notes the definition of the pricing year is also vague and proposed an amendment.  Hence the relevant definitions would be adjusted as follows:

(a)     The capacity measurement period definition would be amended to: 

“3.6  “capacity measurement period” means, for any pricing year, the 12-month period identified by Transpower as the capacity measurement period for that pricing year, being a period starting 1 August 1 October and ending 30 September inclusive immediately prior to the commencement that commences not more than 24 months prior to the start of the pricing year and ends prior to the commencement ” "of the pricing year.

This paper:

  • Summarises submitter’s and cross-submitter’s views on the proposed Transmission Pricing Methodology; and
  • Provides the Commission’s provisional responses to the key issues identified in the Consultation Paper, including proposed amendments to the TPM.

Interested parties have an opportunity to comment on the content of the paper and the proposed amendments to the TPM at the public conference (details below).

The Commission also intends to ask for comments from the industry on the final drafting before the Commission's recommendation to the Minister.

Transmission Pricing Methodology public conference

The public conference on the proposed TPM was held in Wellington on 26 April 2007.

The conference provided interested parties with the opportunity to:

  1. comment on the Commission’s Transmission Pricing Methodology - summary of submissions and provisional responses paper;
  2. orally present matters addressed in their submissions and cross-submissions.
Details of the Conference and Presentations:

Presentations

Response to Commission questions

Final decision on TPM

The Board has approved for publication the final decision paper (Decision Paper) including the draft final TPM (showing changes from Transpower’s original proposed TPM of 23 June 2006). The Decision Paper records the Commission’s final decision on the TPM following its consideration of submissions, cross-submissions and presentations at the Public Conference held on 26 April 2007. It focuses on the points raised by submitters at the Public Conference.

The TPM was recommended to the Minister on 29 June 2007.  Pursuant to section 172I of the Electricity Act 1992 (Act), the Minister notified the amendment of the Electricity Governance Rules 2003 (Rules) under section 172H of the Act and were published in the Gazette on 12 July 2007.

These Rules came into force on 1 September 2007, with the new TPM being effective from 1 April 2008.  Prices up until that date will be calculated as per the existing methodology.

Correspondence

Last update on 12 March 2009 09:25 AM