Consultations

The Authority consulted on several amendments the Authority proposes to make to the new Transmission Pricing Methodology (TPM). The proposed amendments will allow the new TPM to be implemented with more certainty. 

The proposed changes support Transpower’s implementation of the new TPM. Later this year Transpower will communicate transmission charges for the pricing year starting 1 April 2023

These changes follow on from a Code change made early this year to clarify the process for making amendments to the TPM. 

All these amendments are in the Authority's view technical and non-controversial and/or have been subject to adequate prior consultation.

The issues we are proposing to correct were raised by Transpower, Northpower and Electra. We thank stakeholders for engaging with the implementation of the TPM, including by proposing these changes to us ahead of the first pricing year of the new TPM.

We value stakeholders’ feedback on our proposal.We have now published the submissions we have received for our October consultation on proposed Code amendments to correct issues identified in the new TPM.

You can read these submissions below.

On 20 October we updated Appendix A allocations for Mercury NZ Ltd and Meridian Energy Ltd (uploading new versions of documents #13 and #14 below).

As explained in the 2022 decision (pp 126 -127), Mercury NZ Ltd’s allocations includes those for Southdown Cogeneration Ltd, and Meridian Energy Ltd’s allocations includes those for MEL (Te Apiti) Ltd and MEL (West Wind) Ltd.

The versions of documents #13 and #14 published on 19 October had incorrectly omitted those allocations.

The Authority is consulting on its proposal to ensure that none of the three agreements that discount existing transmission charges will be an exception to the general rule that Transpower must charge for transmission services in accordance with the transmission pricing methodology (TPM).

Transpower is party to two existing prudent discount agreements (PDAs) and a notional embedding contract (NEC), which provide various parties with discounts on their transmission charges.

The NEC and existing PDAs were agreed under transmission pricing arrangements that are or will soon be obsolete – as the new TPM commences in April 2023. The Code provides that Transpower must charge for transmission services in accordance with the TPM. However, the NEC is currently an exception to this rule.

The Electricity Authority considers the NEC should no longer be an exception to this rule, acknowledging that a materially different pricing structure will be in place from 1 April 2023.

The submission period for the consultation ended at 5pm on 22 June 2022.

Consultation has begun on a set of proposed Code amendments, some of which were signalled in the Transmission Pricing Methodology 2022 Decision paper, that will support the implementation of the new TPM. The consultation period will run for three weeks.

The proposed amendments support a more effective implementation of the new TPM by 1 April 2023. 

The submission period for the Code amendments to support the implementation of the new transmission pricing methodology ended on 18 May 2022. The Authority received six submissions which can be viewed below along with the consultation documentation.

We have considered these submissions as part of deciding on the Code amendments to support the implementation of the new transmission pricing methodology.

Consultation on the new TPM ended on 23 December 2021.

The Authority decided to incorporate the new TPM into the Code, and this will be implemented by Transpower by 1 April 2023.

We received a number of submissions and cross submissions on the TPM, and you can read these here (link). Questions received from submitters on the proposed TPM along with our responses, are here. The accompanying supporting information and analysis is available on the EMI website.

At the heart of the new TPM is a benefit-based approach - those who are expected to benefit from transmission investments will pay for them.

The new TPM will remove the problems created by the current transmission peak (RCPD) charge, and the costs of the Cook Strait (HVDC) cable being imposed on South Island generators only. It supports better use of the grid, and the right transmission and generation investments being made at the right time and in the right places. It will therefore position New Zealand for a lower cost transition to a low-emissions future by ensuring the best use of existing and future infrastructure, particularly during a period when we will need to generate and transport a lot more electricity.

The Authority estimates that a new TPM will deliver New Zealand consumers a net quantified benefit of $1.8 billion over 28 years.

Benefit-based charges will replace the main charges under the existing TPM - the RCPD charge and the HVDC charge. The benefit-based charges will cover the remaining costs of seven recent major grid investments, and grid investments made from July 2019.

A neutral residual charge for all customers that take power from the grid will recover some unallocated costs, and as a transitional measure, the remaining costs of all other historical transmission investments currently in place. The residual charge is expected to reduce over time as new grid investments are captured in benefit-based charges and as the costs of existing transmission assets are recovered.

Wholesale market electricity prices will work alongside the new charges to manage congestion as a more accurate, responsive and targeted signal of the cost of using the grid. Emerging technologies, real time pricing and new business models are expected to make this an increasingly effective and efficient way to manage grid congestion.

Other changes include those to connection charges, and a stand-alone cost test for the prudent discount policy. 

Changing the TPM will re-balance charges, including between the regions – some will pay more, some will pay less. While those who will be paying more have likely been undercharged for years, the Authority wants to minimise any price shock on household and business consumers. The proposed TPM includes a 3.5% cap on the amount total electricity bills may increase for household consumers and larger industrial customers as a direct result of the change (after inflation and volume growth).

Below are the documents relevant to the consultation.  

TPM proposal to the Electricity Authority | Transpower

The information included in Transpower’s proposal to the Authority is available on Transpower’s website. This includes information on adjustments after 30 June 2021 in light of the Authority’s feedback.  

Between the publication of the Authority’s guidelines in June 2020 and Transpower’s proposal to the Authority on 30 June 2021, the TPM development was led by Transpower through the “check point process”, with regular feedback from the Authority. These documents can be accessed on Transpower's website.

You can view supporting information on the EMI website. This includes programming code, input data files and output files.

The Authority’s TPM review is ongoing and its decision on the proposed TPM guidelines has not yet been made.

This supplementary consultation is part of that ongoing process.

In considering submissions, we identified some possible refinements to the proposal that in our view may better promote the Authority’s statutory objective.

The Authority is now proposing that:

• annual benefit-based charges for post-2019 grid investment be set according to the depreciated historical cost (DHC) method, instead of the indexed historical cost (IHC) approach that was proposed for post-2019 investments in the 2019 Issues paper
• if a direct connect or generation customer closes down one of its plants, its liability for associated benefit-based charges would cease ten years after the commissioning of the relevant grid investments, instead of continuing indefinitely as was proposed in the 2019 Issues paper
• the initial allocation of the residual charge (which is based on historical gross anytime maximum demand) is to be adjusted annually based on changes in the four-year rolling average of gross annual energy usage, lagged by seven years
• a customer may apply for a prudent discount if its transmission charges would exceed the standalone cost of the transmission services it receives.

This consultation paper is supplementary to the 2019 Issues paper.

Its purpose is to consult on the above proposed refinements to the 2019 Issues paper.

We welcome submissions. Please send submission to tpm@ea.govt.nz by Tuesday, 3 March 2020, at 5pm.

The Electricity Authority (the Authority) is proposing a new approach to transmission pricing. We consider this proposal would deliver significant benefits to consumers in the long-term, and support the transition to a low-emissions economy at the least cost to consumers.

TPM reform is necessary and increasingly urgent

The Authority believes the current TPM encourages inefficient use of and investment in the transmission grid. 

Consumers should pay for the transmission assets they benefit from, and not pay for those they do not. That’s not how the current charges work. Under the current TPM, the costs of regional transmission investments are spread across all consumers, regardless of where they live or the benefits they get.

A benefit-based approach to transmission charges

The Authority proposes a benefit-based approach to allocating transmission costs. This means transmission customers who benefit from specific grid investments would pay for them.

We propose two new charges to replace the current regional coincident peak demand (RCPD) charge and the high voltage direct current (HVDC) charge:

• A benefit-based charge to recover the costs of new grid investments and the depreciated costs of seven major existing investments based on their benefits to transmission customers
• A residual charge to recover any remaining transmission costs in a way which does not distort incentives to invest or use the grid.

The new charges are designed to be hard to avoid. The Authority considers these new charges would minimise inefficient grid use and inefficient investments. The charges would send better signals to consumers about the economic cost of using the grid, without distorting grid use or investment in grid-connected generation and transmission alternatives.

This approach to pricing is aligned with the new distribution pricing principles the Authority recently released.

Cross-submissions

The period to make cross-submissions closed on Thursday, 31 October 2019. 

Cross-submissions (including one late cross-submission) and submissions can be viewed below as well as consultation documentation. You can also view supporting information and analysis on the EMI website - including additional cost benefit analysis technical files published on 28 August 2019.  

We have released a supplementary consultation paper setting out refinements to our proposal in our May 2016 Transmission Pricing Methodology (TPM) second issues paper.

The refinements have arisen from our consideration of submissions made on the second issues paper. The proposed refinements seek to:

• remove  some charging anomalies to make the treatment of similar customers more even-handed so that the proposal is more durable (eg in the Ashburton, Buller, Westland and Grey District  and Northland regions)
• reduce uncertainty about the impact of the TPM proposal on consumers, including households and major industrials
• increase the flexibility for Transpower to design and implement the TPM.

The proposal would reduce uncertainty for consumers by capping increases in transmission charges to distributors and major industrial customers. This cap would mean that distributors and retailers could limit the flow-on impact to households to no more than 3.5% of their total electricity bill.

One of the reasons for introducing the cap is to address fears that some distributors have created by over-stating the likely impact of the proposed changes. Although we’re proposing the 3.5% cap to assure consumers the impacts are moderate, our modelling shows the cap is unlikely to be needed for any distributor.

As the first phase of any changes to the TPM would take effect on 1 April 2020, which is also when it is possible that transmission and distribution charges will fall due to the effect of lower interest rates on the Commerce Commission’s price control regime. The proposed changes are expected to reduce transmission charges for 12 of the 29 electricity network areas across New Zealand.

Questions and responses. 

Modelling information used in this paper (updated 7 February 2017)

Cross-submissions

The Board met on 9 March and has decided to invite cross-submissions on the valuation method for determining the total and annual amount to be recovered under the proposed area-of-benefit charge for an investment.  In the supplementary consultation paper, we proposed that the valuation method would be the indexed historical cost or another method that was service-based and cost-reflective, if that would better promote our statutory objective.  This issue was discussed in paragraphs 3.37 to 3.67 of the supplementary consultation paper and is addressed in clauses 6 and 26 to 30 of the proposed TPM guidelines (Appendix E). The Board would like to receive cross-submissions on this particular issue to help them in their decision making.  

The closing date for the cross-submissions was 5 pm on Friday 24 March 2017. 

In the paper, we propose to alter the way transmission charges are shared among transmission customers so that charges are linked to the transmission services delivered and the costs involved. This will substantially improve efficiency for the long-term benefit of consumers.

We propose that two of the key charges in the current TPM be replaced with two new charges which are designed to provide far better price signals. These new charges are an area-of-benefit charge and a residual charge.

The current TPM is complex and sends the wrong signals to transmission users. It encourages wasteful use of the transmission grid, and investment in transmission and generation assets that is not in the best interests of electricity consumers and the New Zealand economy. The economic cost to New Zealand exceeds $200 million and if no change is made, in the future consumers could pay hundreds of millions of dollars more for electricity than necessary.

The consultation paper seeks submissions from interested parties. 

Modelling information used in this paper.  (updated 26 May 2016) 

Questions received from stakeholders during the consultation period and Authority responses (updated 18 July 2016)

Stakeholder briefing. 

We have released a Transmission Pricing Methodology (TPM) options working paper and a companion paper for consultation. 

The options working paper presents options for a new TPM and includes indicative charges. The companion paper provides details about a new charging method that the Authority hasn’t previously consulted on.

A list of questions and answers has been published to be read alongside this consultation. It will be updated during the consultation period.

Modelling used to develop the options is also available at the links below:

• Incidence of modelled transition charges   
• Flow tracing analysis 

As part of its review of the transmission pricing methodology (TPM), the Authority has prepared a problem definition working paper to clarify its views on problems with existing TPM charges for interconnection and HVDC assets.

This paper builds on the problem definition provided in the October 2012 issues paper, taking into account submissions on the October 2012 issues paper, responses to the Authority's questions at the May 2013 TPM conference, and submissions on problems identified in the Authority’s working papers to date.

The problem definition working paper focuses on problems with the TPM in relation to interconnection and HVDC assets, and the prudent discount policy. The Authority considers that problems with connection charges, the recovery of the costs of network reactive support, and the treatment of loss and constraints excess income have been addressed in other consultations.

Issues identified with the current TPM and not addressed in this paper will be addressed in the second TPM issues paper which will be released in 2015.

The Authority is considering key aspects of a revised TPM proposal through a series of working papers which will provide key inputs into the second issues paper.

The Authority has prepared the working paper to understand whether LRMC charges would better promote the Authority’s statutory objective than the status quo or beneficiaries-pay charges. In particular, the paper examines whether LRMC charges:

• could be designed so as to provide sufficiently accurate price signals to promote efficient operation of, and investment in, the electricity industry
• would complement the signals provided by nodal pricing in the wholesale market
• would be practicable within a regulatory environment.

The Authority invites submissions on the consultation paper by 5pm on Tuesday, 23 September 2014.

The connection charges working paper published on Tuesday, 6 May 2014 has had some corrections made to it.  The corrected version is released.  Corrections made to the paper are shown in the ‘marked-up’ version; a clean copy is also available.  Submissions now close at 5pm 24^th June 2014.

As per the schedule for the development and release of the working papers, which was announced in the Market Brief on 16 July 2013, the Authority has prepared the connection charges working paper to better understand whether there are efficiency problems with existing transmission connection charges. The matters this paper examines are:

• whether there is potential for connection assets to be inefficiently classified as interconnection assets
• whether the asset component of the connection charge, which is based on applying average depreciation to all connection pool assets, is inefficient
• whether the connection pool cost allocation methodology, for the recovery of maintenance, operating and overhead costs, is inefficient.

We are conducting a review of the Transmission Pricing Methodology (TPM) contained in schedule 12.4 of the Electricity Industry Participation Code. We are developing our response to submissions and cross submissions in relation to the consultation paper 'Transmission Pricing Methodology: issues and proposal’ dated 10 October 2012 and to points raised in the May 2013 TPM conference.

We have prepared the ‘Beneficiaries-pay options’ working paper to examine different options for applying a beneficiaries-pay charge. This working paper will inform a second issues paper, which is due to be released in 2014.

Modelling

We have published a number of data files containing data used in the preparation of the Beneficiaries-pay working paper on EMI datasets. The data is based on vSPD modelling simulations using historical market offers, and should not be treated as being predictive of actual future transmission charges.

We have a policy of making publicly available material that has been released to individual participants as part of a consultation process. Accordingly, any material that is subsequently released to participants will also be published on this webpage.

Forum.

We are conducting a review of the Transmission Pricing Methodology (TPM) contained in schedule 12.4 of the Electricity Industry Participation Code. We are developing its response to submissions and cross submissions in relation to the consultation paper ‘Transmission Pricing Methodology: issues and proposal’ dated 10 October 2012 and to points raised in the May 2013 TPM conference.

We have prepared the ‘Use of LCE to offset transmission charges’ working paper to explore some submitter’s suggestions that the proposed use of LCE to offset transmission charges would distort the otherwise efficient wholesale market signals. This working paper will inform a second issues paper, which is due to be released in 2014.

We are conducting a review of the Transmission Pricing Methodology (TPM) contained in schedule 12.4 of the Electricity Industry Participation Code. We are developing our response to submissions and cross submissions in relation to the consultation paper ‘Transmission Pricing Methodology: issues and proposal’ dated 10 October 2012 and to points raised in the May 2013 TPM conference.

We have prepared the ACOT working paper to understand the efficiency implications of any changes to the TPM in relation to ACOT payments. This working paper will inform a second issues paper, which is due to be released in 2014.

The Authority will publish a corrected version of the ACOT summary of submissions

We are conducting a review of the Transmission Pricing Methodology (TPM) contained in schedule 12.4 of the Electricity Industry Participation Code (Code). We are developing our response to submissions and cross submissions in relation to the consultation paper ‘Transmission Pricing Methodology: issues and proposal’ dated 10 October 2012 (October issues paper) and to points raised in the May 2013 TPM conference.

We have prepared the sunk costs working paper to discuss how economic theory defines a sunk cost, and whether sunk costs are relevant to efficient pricing decisions, such as the pricing of electricity transmission services. We have also published a shorter overview paper aimed at non-technical readers.

We are conducting a review of the Transmission Pricing Methodology (TPM) contained in schedule 12.4 of the Electricity Industry Participation Code (Code). We are developing our response to submissions and cross submissions in relation to the consultation paper ‘Transmission Pricing Methodology: issues and proposal’ dated 10 October 2012 (October issues paper) and to points raised in the May 2013 TPM conference.

In this regard, we are considering how to respond to concerns and suggestions made in relation to the cost-benefit analysis (CBA) of the Authority’s TPM proposal, which was detailed in Appendix F to the October issues paper – Cost benefit analysis of TPM proposal. We will develop a second issues paper that is likely to materially alter the proposal that was in the consultation paper. The second issues paper will include a CBA for the revised TPM proposal (revised TPM proposal).

We have prepared the CBA working paper, which sets out a revised approach and method for the CBA. To ensure that it has fully understood concerns and suggestions made on the October issues paper, we are releasing this working paper, and welcomes submissions on our proposed approach to the CBA.

We are reviewing the transmission pricing methodology (TPM), which specifies the method for Transpower New Zealand Limited (Transpower) to recover costs of providing transmission services.

We are of the opinion that the current TPM can be improved so as to better promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

We developed a decision-making and economic framework on which we would make decisions about the TPM, which was generally well received by stakeholders. We have applied this framework to derive our proposal for the TPM.

Submissions are due on 1 March 2013 with cross-submissions due on 28 March 2013.

We have a policy of making material that has been requested by, and released to, individual participants as part of a consultation process publically available. Accordingly, we have published a number of data files containing data used in the presentation material accompanying the release of the TPM issues paper. It is important to note that the data is based on SPD modelling simulations using historical market offers, and should not be treated as being predictive of actual future transmission charges.

TPM vSPD model, and the process data and model used to calculate the SPD charge

We have released a consultation paper to obtain feedback on our proposed decision-making and economic framework for the Transmission Pricing Methodology (TPM) Review.

Our intention is to establish a comprehensive and durable framework for making decisions about allocating the costs of transmission services that are consistent with our objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

Further details on the process and next steps for the TPM Review are available on the Transmission pricing review page.

We will place submissions to the consultation paper on our website on Monday 27 February 2012, and will give parties until 5:00 pm on Monday, 12 March 2012 to make cross-submissions.

We intend meeting with submitters in March 2012, and expect to finalise our decision making and economic framework for the TPM Review in May 2012.

Summary paper

We have also published a summary paper on the decision-making and economic framework for the transmission pricing methodology review consultation paper. As the summary paper provides a broad, non-technical overview of our proposals, parties wanting to make submissions should refer to the consultation paper.

Cross-submissions

Cross-submissions should be received by 5:00pm on 12 March 2012. The details of our preferred formats, the process for receiving cross-submissions is the same as that set out for submissions. As for submissions, your cross-submission is likely to be made available on our website.

At this point, our focus is on the decision-making and economic framework for transmission pricing. Other issues will be addressed at a later date.

Questions

A number of parties have requested clarification, or raised questions, regarding this consultation. Requests and responses are published below. Please e-mail us with any further questions or requests for information.

Email: submissions@ea.govt.nz

Meetings with submitters and interested parties

We plan to meet submitters or other interested parties following the cross-submissions process. The meetings could be either in person or by teleconference. Our team members can travel to meet submitters, but we would like to coordinate the meetings to limit time and travel costs. If you are interested in meeting with us to discuss aspects of your, or other, submissions please e-mail us where and how (in person or by teleconference) you would prefer to meet.

Email:  submissions@ea.govt.nz

This consultation paper was published by the Transmission Pricing Advisory Group (TPAG).

The Authority formed the TPAG to assist with the Transmission Pricing Review. The TPAG is tasked with providing independent advice to the Authority on a recommended option for the Transmission Pricing Methodology (TPM) and associated guidelines if a change from the status quo is the preferred option.

A key aspect of the TPAG role is to publish a discussion paper for consultation, which provides, with supporting analysis, a preferred TPM option and associated guidelines, where there is a change from the status quo, for the development of a TPM by Transpower. This paper is the TPAG's Discussion Paper, the purpose of which is to invite submissions on TPAG's analysis and proposed recommendations.

This consultation paper particularly considers options for the allocation of HVDC costs, for deeper or shallower connection and for static reactive compensation.

The TPAG held a briefing to outline the Transmission Pricing Discussion Paper on 29 June 2011.

TPAG public briefing

Request for further information

HVDC analysis spreadsheet

The Authority has received a request from Graeme Everett, Norske Skog Tasman for a copy of the HVDC analysis LRMC model used to support TPAG's analysis in the Discussion Paper. This Excel 2007 spreadsheet is available below. Note it is not compatible with earlier versions of Excel.

Graeme Everett also requested further information on how the spreadsheet works. His request and the response are available below.

Transition options spreadsheet (Table 28, Figure 3 and 4 in the discussion paper)

The Authority received a request from Robert Allen, Vector for a spreadsheet producing table 28, and figures 3 and 4 in the Discussion Paper. The Excel 2007 spreadsheet is available below.

We have published a Code amendment proposal consultation paper. Our establishment with a new statutory objective has led to a reconsideration of the decision framework that underpinned previous decisions about the transmission pricing methodology (TPM).

Note: the consultation paper was updated on 16 February 2011. The original version, published on 14 February, included a footnote 4 about paragraph 12 of the Executive Summary - this footnote has been removed in the updated version as quantitative cost benefit analysis was undertaken.

The decision framework includes specific provisions of the Code including pricing principles as set out in the clause 12.79 of the Code (pricing principles) and provisions on their interpretation and application). The consultation paper discusses the ongoing relevance of the pricing principles and identifies three possible means to achieve the objectives being sought:

• Remove the pricing principles from the Code.
• Confirm existing pricing principles.
• Introduce new pricing principles to reflect the new statutory objective.

The options have been assessed against the evaluation criteria set out in the Code amendment principles and the objectives of the proposal.

The preferred proposal in the consultation paper is to remove the pricing principles and the related interpretation clauses (clauses 12.79 and 12.80) from the Code. To proceed with this approach we must initiate a Code amendment process in accordance with section 39 of the Act.

The consultation paper incorporates the Code amendment regulatory statement and the complete analysis of the proposed amendment is set out in that regulatory statement. The regulatory statement includes:

• a statement of the objectives of the proposed amendment;
• an evaluation of the costs and benefits of the proposed amendment; and
• an evaluation of alternative means of achieving the proposed amendment.

The Commission is undertaking a review of transmission pricing. As part of the second stage of this review a consultation paper on stage 2 options has been published with supporting appendices.

Submissions on the consultation paper are invited by 4pm on 24 September 2010. Please note the closing date for submissions has been extended and differs from the date given in the consultation paper of 31 August 2010.

A Transmission Pricing Review has been initiated to undertake a wide-ranging review of options for the allocation methodology for transmission costs.

As part of the first stage of this review a consultation document on high-level options for transmission pricing was published.