Transpower’s $154m capex proposal gets initial approval

A draft decision paper approving a major capital expenditure proposal from Transpower New Zealand Limited (Transpower) has been published by the Commerce Commission.

If finalised, the decision would allow Transpower to invest and increase its revenue to recover a maximum $154 million on grid assets and equipment to manage voltage stability in the Waikato and Upper North Island region.

The proposal is for the first of a two-stage project Transpower wants to undertake.

The need to invest in managing voltage stability is due primarily to actual and announced decommissioning of major generation plants in the region, as well as forecast electricity demand growth in the area, commission deputy chair Sue Begg says.

“The closure of generation plants in the Waikato region is expected to cause voltage management issues in the Auckland and Waikato regions, particularly as the population grows and peak electricity demand increases,” she says.

“In preparing its proposal, Transpower received broad stakeholder agreement on the need to invest in the proposed assets and equipment to meet that need.”

Begg acknowledges that the impact of COVID-19 added uncertainty to forecast electricity demand and the timeframe for removing generation from normal service, as well as to the likely costs of Transpower delivering the first stage.

However, Begg considers Transpower’s proposal and the commission’s draft decision appropriately accommodated that uncertainty.

“We conducted a thorough evaluation of the proposal to ensure that it is appropriate and delivers significant net benefits to the electricity market. We have also set up an incentive scheme that shares the risk between Transpower and consumers to manage delivery uncertainty and to ensure that this is money well spent.

“This is about making sure the lights stay on and safeguarding the future of supply to the region.”

The commission will consider submissions by July 9 before making its final decision which, if approved, will likely increase transmission revenue during the first stage of the project by about 1%.

The commission expects to make its final decision by September 3, 2020.

A new transmission pricing methodology (TPM) that Transpower develops will introduce benefits-based charges, where an investment is paid for by the customers who benefit from it. The new TPM will apply to Transpower’s future recovery of the costs of this project and will largely be recovered through customers in the Waikato Upper North Island region.

Transpower owns and operates the national grid – the high-voltage transmission network connecting generation plant with towns and cities across New Zealand.