Correspondence relating to 2019 Issues Paper

We received a letter from New Zealand Steel expressing its concerns about the consultation process for the 2019 Issues paper.

Email correspondence with NZ Steel on further engagement on TPM

8 March 2020

Dear Alan

Thank you for your 14 February 2020 email to James Stevenson-Wallace. As with previous correspondence James has asked me to respond directly, as the executive responsible for the TPM consultation process.

I know the Authority Board was most appreciative of the time stakeholders, including New Zealand Steel, invested in making oral submissions last December – they found considerable value in hearing directly from stakeholders. As you note, during New Zealand Steel’s oral submission the Board invited New Zealand Steel to provide further information to the Authority's TPM team, including the NZIER report. Subsequently the Authority received and considered your email of 18 December 2019, and the NZIER report you attached to your 14 February 2020 email.

You have specifically asked about the process to further engage on the points outlined in your email of 18 December 2019. Based on your various engagements with the Authority, including most recently your 3 March 2020 submission on the supplementary consultation paper, we consider that New Zealand Steel has had appropriate opportunities to engage with the Authority and submit its views. Should the Authority’s TPM team require clarification or further information to support its consideration of points made or information provided by New Zealand Steel, they will be in contact with you.

As you are aware the Authority has been proactively releasing TPM related stakeholder correspondence. Although the NZIER report you provided refers to third parties, as it is based on data in the public arena we see no grounds for not publishing it. If you disagree can you please advise, within 5 working days, the grounds upon which you believe the Authority should not publish the report. We will then decide whether or not to publish it. If this timeframe is too short, please contact me as soon as possible to request additional time to respond.

Finally, as previously advised in Market Brief, it is our intention is to publish, this month, papers covering the Authority’s consideration of submissions on the cost benefit analysis and peak charges. We expect to publish the peak charge paper within the next week.

Should you wish to discuss any of this email further, can you please contact my EA, Eleni Kosmadakis (Eleni.Kosmadakis@ea.govt.nz) to arrange a time to talk to me and Jean-Pierre de Raad.

Rob Bernau  
General Manager Market Design     
Electricity Authority   

14 February 2020

Hi James

I email to seek clarification regarding the process for further engagement on TPM.

1. As you are aware our chief Executive, Gretta Stephens, and myself made an oral submission to the Board on 2 December 2019. We gained the clear impression the Board was keen to further engage on some of the points we raised.
2. Having received no follow-up from the Authority, I phoned and spoke with a member of the TPM team on 16 December 2019. I got the impression little if any thought had been given to a follow-up process. It was stressed to me the process was to be kept as formal with written information to be provided. This varied from the impression Gretta and I gained on 2 December that face-to-face interaction was desirable to gain a full understanding of the points raised, particularly with regard to the practical application of the TPM proposals and avoiding perverse outcomes.
3. On the 18^th of December the email below was sent to the TPM team.
4. The Market Brief on 21 January outlined the intention to issue a supplementary consultation document on specific aspects of the TPM proposal. Reference was also made to further engagement on the CBA and peak charging.
5. The supplementary consultation paper was published on 11 February. We have briefly reviewed this and may submit on some points. However, the points consulted on are not directly connected to the points we emphasized in our session with the Board on 2 December.
6. We look further to the planned engagement later this month on the CBA and peak charging.      

In our oral submission we noted work that had been undertaken by NZIER relating to AMD as an allocator. This report has been completed and is attached. While all the information in the report comes from data in the public arena, we are mindful it does include reference to third parties and question if it should be released on the Authority website.

It will be appreciated if you can advise us as to the process to further engage on the points outlined in the email below.

Thanks

Alan Eyes
Energy Manager
New Zealand Steel

18 December 2019

To the Electricity Authority Board and TPM review team

Thank you for the opportunity for Gretta Stephens and myself to make an oral submission to the Board on 2 December. We were able to highlight areas of particular concern with the current proposals and interact briefly with the Board on some of the topics. However, there was limited notice given to prepare for the meeting and in the half-hour allocated we could do little more than identify areas we would like the Board to re-examine, and we provided high-level responses to the questions we were asked. Members of the Board indicated they would like to better understand some of the points we raised and have additional information supplied.

Outlined below are the matters we noted from the meeting, but it will be appreciated if these can be confirmed against the notes taken by members of the Board as to the additional information / engagement they are inviting from NZ Steel.

1. Information was provided on the NZ Steel EBIT over the last 10 years and that the modelled increase in transmission charges would range between 20-33%. We ask the Authority to re-examine the reasons for excluding wealth transfers from the 23 July proposals and the impact this has on individual businesses and other consumers. 

2. Concern was expressed at the proposed allocator and the inconsistency of treatment of consumers.
   1. The Residual, and to a lesser extent benefits charge, form a large part of the proposed revenue recovery formula. The size of the residual is an issue in its own right for the Authority to re-consider.
   2. An AMD allocator for a large residual is arbitrary and inappropriate. The fact it is proposed to be based on historic AMD and gross of cogen, amplifies the situation.
   3. The proposal applies AMD at the Transpower customers level. This is inconsistent treatment across consumers and disadvantages direct connect consumers.

If AMD is to be the allocator, it needs to be applied at the ICP level, and related to current load and be net of cogen.

We commended the attention of the Board to the 2015 TPM paper which allocated on an assumed AMD at the ICP level. Also we noted initial analysis undertaken by NZIER for NZ Steel on the subject. This has involved looking at EDB pricing methodology work and assessed AMDs based from coincident peak information. The Board asked we share this work. While we are happy to make available the initial paper, NZIER are currently expanding the EDB information base and we expect a fuller report prior to Christmas. We will welcome the opportunity to work through the detail with you, and answer the question asked re cost differentials between net and gross load.           

3.  Avoiding perverse outcomes. We briefly explained the configuration of the Glenbrook cogen plant and how this is an integral part of the iron making process. The cogen is fuelled by off-gases and waste heat, which if not used for generating electricity would be vented to the atmosphere.  On average cogen meets 60% of the electrical energy needs at Glenbrook. This generation is currently the largest north of Huntly and plays an important role in grid stability including power factor, voltage and frequency support. We got the impression members of the Board are as keen as we are to find a way to differentiate cogen such as Glenbrook, and at other industrial plants, from embedded generation built for the purpose of reducing peak charges.   

4. NZ Steel actively manages load over peaks. This minimises requirements on the grid and the need for further investment. It is achieved with minimal impact on production, and by managing cogen plant outages. We questioned the proposed move for the UNI from a strong coincidental peak pricing signal and pointed out that no, or a weak signal, could see the peak demand at Glenbrook increase by more than the 75MW modelled for the whole country. We encouraged the Authority to recognise the extensive lead times for grid upgrade, and to move away from ‘a one size fits all approach’ for the country. This includes providing Transpower with clear guidelines for a peak pricing signal for the UNI (and other parts of the country where warranted).     

Thank you again for the opportunity to make the oral submission. We seek your early confirmation as to the points for further engagement, the timing, and the process. 

Regards

Alan Eyes
Energy Manager
New Zealand Steel

The NZIER report below was attached to New Zealand Steel's email from 14 February 2020