Electricity Commission issues green light on Transpower's new Auckland power line

The Electricity Commission has released its Notice of Intention to approve Transpower's amendment to the North Island Grid Upgrade Project for the supply of electricity into, and north of, Auckland. Public consultation on Transpower's latest proposal will be held before the Commission makes its final decision.

On 31 January the Electricity Commission released its Notice of Intention to approve the revised Grid Upgrade Plan put forward by Transpower on 20 October 2006.

The latest Transpower proposal contains a suite of measures aimed at ensuring the security of electricity supply to Auckland, including the construction of a new transmission line between Whakamaru and Pakuranga which is capable of carrying 400kV but will only initially be energised at 220kV.

Background to the new proposal

In Transpower's original proposal submitted to the Commission in September 2005, Transpower proposed the construction of a new 400kV double circuit line between Whakamaru and Otahuhu. This construction was proposed as the first step in accomplishing Transpower's long-term strategic vision for 400kV to replace 220kV as the core grid transmission voltage. Transpower submitted that the proposal was necessary to avoid an increase in risk to security of supply in the Auckland and Northland region at times of peak loading from 2010.

However, on 27 April 2006, the Commission gave notice under rule 15.1 of Section III of Part F of the Electricity Governance Rules 2003 (Rules) that it intended to decline to approve the original proposal.

A full commentary on Transpower's original proposal and the Commission's reasons for declining the proposal is available in an earlier Bell Gully article on our website "Electricity Commission turns down Transpower's proposed 400kV Whakamaru - Otahuhu line to be installed by 2010: A review". In brief some of the key reasons given by the Commission for its refusal included:

• Transpower's analysis did not consider all alternative proposals and that its analysis of the benefits of its proposal were over-stated. In particular, Transpower's analysis did not consider the credible alternative project consisting of a new 220kV double circuit transmission line between Whakamaru and the South Auckland urban boundary (the alternative 220kV proposal);
  
  
• the Commission placed considerable value on delaying investment, giving time to consider advances in technology or changes in the electricity system that may mitigate against a new line being needed for Auckland, such as new generation in Auckland or Northland; and
  
  
• the Commission's estimate of the capital cost of Transpower's proposal was higher than Transpower's estimate.

On 31 May 2006, at Transpower's request, the Commission agreed to suspend its consideration of the original proposal. At this time, Transpower advised the Commission that it intended to provide another proposal for the Commission's consideration and that it no longer wished to progress the specific 400kV proposal to which to the notice of intention issued on 27 April 2006 related.

On 20 October 2006, Transpower submitted its new proposal to the Commission.

The amended proposal

In brief, the amended proposal put forward by Transpower involves:

• building an overhead transmission line from Whakamaru to near the South Auckland urban boundary, which will be initially energised at 220kV, and later, when load growth requires it, modelled to be operated at 400kV following the construction of additional substations;
  
  
• a transition station near the South Auckland urban boundary where the overhead line will connect to underground cables;
  
  
• an underground cable section from the transition station to Pakuranga substation (rather than Otahuhu to increase diversity of supply);
  
  
• a second underground cable section to Otahuhu substation to be added at a future date; and
  
  
• the use of triples conductor to maximise the capacity of the overhead line.

The Commission's role

Transpower's proposal is an "investment proposal" which, if it is approved by the Commission, will allow Transpower to recover the approved costs of that investment from designated transmission customers in accordance with the transmission pricing methodology set out in Section IV of Part F of the Rules.

The Commission is required to consider and assess Transpower's proposal in accordance with the processes and considerations set out in Section III of Part F of the Rules. In particular, rule 13.4 provides that, in order to be able to approve the proposal, the Commission must be satisfied that the proposed investment:

• reflects good electricity industry practice in meeting grid reliability standards;
  
  
• complies with the processes set out in the Rules; and
  
  
• meets the requirements of the grid investment test. The grid investment test is set out in clause 4 of Schedule F4, and essentially requires that a proposed investment that is necessary to meet the reliability standard must maximise the expected net market benefit or minimise the expected net market cost compared with a number of alternative projects and that such conclusion is sufficiently robust having regard to the results of a sensitivity analysis (if one is conducted).

The Commission must also have in mind the objectives and outcomes specified in the latest Government Policy Statement (GPS) on Electricity Governance issued in October last year. These include:

• timely decision making;
  
  
• business confidence arising from more certainty around long-term planning and infrastructure development, adequate capacity to allow for the development of renewable generation; and
  
  
• priority to be given to reliability over cost where there is an element of uncertainty.

The Commission's decision

The Commission's decision to give preliminary approval of Transpower's Proposal was not unanimous but the Commission's Deputy Chair, Peter Harris, notes in his Overview of the decision that:

• all of the Commissioners agree that maintaining a reliable supply of electricity into and through Auckland requires a substantial upgrade of the transmission grid from South Waikato to Auckland;
  
  
• many of the elements of the upgrade are agreed, and are not considered controversial;
  
  
• substantial improvements in reliability and benefits have already been captured as a result of the review process that was undertaken since the original proposal was submitted as part of the Grid Upgrade Plan in September 2005.

At the time of publication the Commission had not released a detailed statement of its reasons for reaching the decision although it had indicated that this was to be available mid-February. Some of the reasons given for the decision outlined in the Overview include:

• the majority view that the proposal meets the requirement of the grid investment test with a result of similar magnitude to that described by Transpower in its application;
  
  
• the proposal is consistent with meeting its principal objectives under the Electricity Act 1992; and
  
• the proposal has a slight advantage to the alternative 220kV proposal in achieving the outcomes sought in the GPS.

However, it is to be noted that the Commission's approval is limited to the first stage of Transpower's plan. It does not include approval for the upgrading of the proposed transmission line to 400kV and this approval is not being sought by Transpower in its new proposal.

Next steps

After the Notice of Intention was released either a designated transmission customer, an authorised representative of parties substantially affected by the grid upgrade proposal, or Transpower, had the right to request the Commission to hold a public conference . The right to make this request closed on 15 February 2007.

The Commission has indicated on its website that it anticipates holding a public conference in late April or early May 2007. The public conference process includes the opportunity to make written submissions about the Commission's decision.

Following the public conference, the Commission may confirm or amend the Proposal. If no public conference is held, the Commission's decision, as set out in the Notice of Intention, is final.

 

If you would like to know more about the decision or require assistance with the public consultation process, please contact any of our electricity law team or in the first instance please call:

Garry Downs
Partner

Chris Gordon
Partner

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.