Draft decision on Transpower project amendment

Commerce Commission releases draft decision on Transpower’s Upper South Island reliability project amendment application

The Commerce Commission has released its draft decision approving Transpower’s application for an amendment to the Stage 1 Upper South Island reliability project.

The draft decision increases Transpower’s major capex allowance (MCA) from $4.99 million to $7.99 million for the project and makes changes to the list of approved major capex project outputs that Transpower must deliver as part of the project. These changes enable Transpower to secure the designations and property rights for its preferred option to build two switching stations between the Orari and Rangitata rivers near Geraldine in South Canterbury.

Commission Deputy Chair Sue Begg said there is an ongoing programme of work to secure electricity supply in the Upper South Island and the Commission considers Transpower’s proposal is warranted.

“There is a case for securing the designations and property rights for the switching stations now, given the risk of changing land use in the area from mainly pastoral and cropping farming, to intensive dairy farming supported by irrigation. This also provides certainty for landowners around the transmission system development in the area and more certainty over the cost of future construction, which benefits consumers,” Ms Begg said.

“The draft decision allows Transpower to secure the option of approving the construction of the two switching stations. This would not preclude Transpower from taking other options in the future. This approach reduces the risks to the consumer in the long term, including potential cost increases from the work being deferred.”
Transpower will still need to seek approval for the actual construction of the two switching stations should this be the approach that is in the best long-term interests of consumers.

The Commission is seeking feedback on its draft decision and Transpower’s proposal by 12 December 2014.

The draft decision and Transpower’s amendment application are available online at:www.comcom.govt.nz/amending-the-allowance-and-outputs-for-the-upper-south-island-stage-1-project

Background

Transpower must seek approval from the Commission to recover the costs for increases in the expenditure, or to change the outputs, for major capex projects. Major capex projects are those to enhance or develop the transmission grid and that have an expected cost greater than $5 million (increasing to $20 million from 1 April 2015) and are for new assets or asset upgrades, rather than ‘like for like’ asset replacements.

The rules relating to Transpower’s major capex projects are addressed in the Transpower Capital Expenditure Input Methodology Determination. The input methodology requires Transpower to seek approval for major capex projects in the national grid, and deliver them to a set of approved components to recover the full cost of its investments from consumers. The input methodology also specifies the process and evaluation criteria the Commission must follow.

After the Commission has approved a major capex project, Transpower may apply to have components of that approval amended. The rules that Transpower and the Commission must follow for making amendments are also set out in the input methodology. These are expected to be the last amendments to the approved project and any new outputs will be the subject of a separate proposal.

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