1 Corporate
Services Group
1.1 To
support and adopt a Local Bill to enable Top Energy to own and manage its
expanded plant and connect it to its network
File
Number: A2198731
Author: George
Swanepoel, In-House Counsel
Authoriser: Samantha
Edmonds, General Manager - Corporate Services
Purpose of the Report
To seek the Committee’s agreement for FNDC to put
forward a Local Bill to Parliament, that will seek to amend the Electricity
Industry Act 2010 (EIA) to
incorporate an exemption into law to enable Top Energy to own and manage its
expanded plant and connect and directly supply electricity to its network.
Executive Summary
· Top Energy is a Consumer Trust. The
Trust’s purpose is to hold the shares on behalf of Far North power
consumers.
· Top Energy is planning to increase its geothermal
electricity generation by 56MW in two 28MW expansions.
· For the full
benefit of the increased generation to be passed to the electricity users in
the Far North, Top Energy must be able to own and manage this increased
generation and connect it to its network.
· To achieve the above will require an amendment to the
Electricity Industry Act to incorporate an arm’s length exemption for Top
Energy into law.
· The change to the legislation requires a Bill to be
introduced and considered by Parliament.
· To ensure this a Local Bill put forward by FNDC will ensure
that the Bill is heard.
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RECOMMENDATION
That the Far North District Council on behalf of
Top Energy puts forward a Local Bill to Parliament, that will seek to amend
the Electricity Industry Act 2010.
The Bill shall propose the following amended wording to
clause 3(b) of Schedule 2 of the Electricity Industry Act 2010 :
An
interest in a business that generates electricity from a geothermal energy
source if –
(i) Although
expanded, the geothermal plant which draws energy from that resource source
was originally commissioned between 1 January 1998 and 1 January 2009, and is
currently owned by the person that commissioned it; and
(ii) The
output from the expanded geothermal plant is less than 100MW (determined
according to nameplate); or
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1) Background
Top
Energy is a Consumer Trust. The Trust’s purpose is to hold the shares on
behalf of Far North power consumers connected to Top Energy’s lines
network and to distribute the benefits of share ownership to these consumer
beneficiaries as a group, irrespective of which electricity retailer they may
purchase electricity from.
Top
Energy services approximately 31,000 domestic customers with only two
industrial customers, AFFCO and JNL.
The
customer base is spread over a large geographic area and compared to other
electricity consumers in New Zealand they use relatively little power. This results in
approximately one third of the network being uneconomic.
The
Far North has some of the most expensive electricity in New Zealand. This is
partly due to distance from generation, uneconomic lines and lack of retailer
switching (despite many alternative providers being available and a total of 21
retailers operating in the area).
Top
Energy wholly owns Ngawha Generation Ltd (NGL) which currently operates 25MW of
geothermal generation. NGL has obtained resource consents to increase this
generation by 56MW in two 28MW expansions. The first expansion is currently
under construction and is due to be completed in 2021.
The
Electricity Industry Reform Act 1998 (ELRA) limited the amount of generation
that could be owned by a lines company.
In
2010, the Electricity Industry Act 2010 (EIA) replaced the EIRA and the limit
was lifted to 50MW of generation if it was connected to the lines
company’s network (embedded) or 250MW if it is grid connected to the
national grid operated by Transpower.
If a
lines company exceeds these limits, then it must comply with the arm’s
length rules and create corporate separation between the lines and generation
business.
Transpower
charge consumers of the Far North based on a connection charge and an
interconnection charge. The connection is based on the dedicated assets that
are used to service the customers. The interconnection is a fee calculated from
the Regional Coincident Peak Demand on the network multiplied by a $/kW figure
that varies from year to year (currently $113.77/kW).
Currently
the connection charge is circa $1.0m and the interconnection charge is circa
$4.4m. The consumers pay for both of these charges as Top Energy pass these
costs through in the line charges.
2) Discussion and Options
Status quo
Top Energy applied for and was granted an exemption from the
EIA 2010 for a period of 10 years from 2017. However, Top Energy will not start
new generation until 2021.
The exemption applies only to the geothermal generation and
does not permit the diesel backup generation that Top Energy currently owns and
operates.
The
diesel backup generation owned by Top Energy is to limit line price increases
by using these generators to maintain supplies in planned and unplanned outages
thus deferring investment in expensive lines that would be underutilised.
Having no retail outlet means that it is not able to replace uneconomic lines
with local solutions. Further without the diesel generation there is an unacceptable risk to 10,000
Kaitaia customers.
This
option results in Top Energy not being able to use the exemption and complete
the necessary investments for its consumers, who are our ratepayers. Further,
this provides very little certainty for a 35-year consent.
Grid
Connection option 1
Top
Energy has two options to connect the next 28MW station OEC4 directly to the
grid with Transpower.
One
option is the establishment of a new Transpower substation to directly connect
OEC4 to the Maungatapere to Kaikohe line. The costs of the establishment
of a new Transpower substation to directly connect OEC4 to the Maungatapere to
Kaikohe line is in the region of between $10-15m.
There is a cost of $14 million which is
not an efficient investment.
Grid Connection Option 2
The
second option would involve transferring the existing Kaikohe 110kV substation
back to Transpower. This
substation has a spare circuit breaker and bay that OEC4 could be connected to.
This
option will only cost about $1 million and is the preferred asset option.
The
connection options have quite different results for consumers. If the generator
is grid connected (option 1) the connection charge would reduce by approx. 50% but
the interconnection charge would stay the same as the generator is exporting
power directly into the grid and therefore not reducing the peak demand.
If the generator is embedded in Top Energy’s network
(option 2) then the peak demand will reduce by 28MW or $3.185m (@$113.77/kW).
The 50% connection charge saving would also be realised with this embedded
connection. This saving of circa $3.735m p.a. would flow directly to the
consumers of the Far North. NGL would increase its costs (and therefore reduce
its profitability) by $550k p.a. This is Top Energy’s preferred option.
How Does FNDC Fit in?
To achieve the above savings Top
Energy would need to be able to embed the new generation in their network
without relying on the exemption that was granted by the Electricity Authority
in 2017.
However, the issue is ownership separation
of electricity lines distribution and generation (and retailing) which is set
out in Part 3 of the Electricity Industry Act 2010. Sections 72 (2)(b)(i) and
76(3)(a) both refer to 50MW as being the threshold, after which separation and
compliance with the arm’s length rules become mandatory.
Any proposed change to the 50MW maximum
would open the proposition to all and anyone in NZ to expand their
generation. This will be opposed by the gentailers and will almost
certainly be rejected by government.
In 2001, an amendment to the Electricity
Industry Reform Act 1998 (ELRA) excluded Top Energy (and only Top Energy) from
the provisions of the Act and allowed ownership of up to 12 MW of geothermal
generation.
The approach Top Energy proposes is to make as small a variation as
possible and to use the already existing exclusion which is specific to
Ngawha. The following is the suggested change:
An interest in a business that
generates electricity from a geothermal energy source if –
(i) Although
expanded, the geothermal plant which draws energy from that resource source was
originally commissioned between 1 January 1998 and 1 January 2009, and is
currently owned by the person that commissioned it; and
(ii) The
output from the expanded geothermal plant is less than 100MW (determined
according to nameplate); or
That involves changing the wording in (i)
by the addition of the words “Although expanded,” and amending the
output in (ii) from “12MW “to 100MW”.
This will only impact Top Energy and
consumers of the Far North.
In order for the proposed amendment to be
considered by Parliament there are 2 options: it can either go forward as a
Member’s Bill or as a Local Bill.
Option 1 Members Bill
The drafting of the Bill is the same, but
as a Member’s Bill it goes into a ballot with all the other
Members’ Bills and it needs to be drawn from the ballot before it will be
read in Parliament. It has no certainty of being drawn.
This is not a recommended option.
Option 2 Local Bill
If FNDC puts forward a Local Bill which is
supported and promoted by its local MP, once the procedural aspects have been
complied with it is introduced to Parliament and heard on the next Tuesday
following its introduction.
This option is recommended as it gives
certainty.
Reason
for the recommendation
Northland
has the highest wholesale prices in NZ. The average difference of wholesale
price between Kaikohe and Benmore over the last 5 years is $11/MWh. This
equates to $3.6m p.a. for Far North consumers.
This law
change would produce a transmission cost savings of approximately $3.185m p.a.
for consumers. In addition Ngawha incurring a portion of transmission
connection costs would save consumers a further circa $600k p.a.
Finally,
OEC4 is forecast to drop wholesale pricing in the Far North by $2/MWh,
equivalent to circa $650k.
Given the
above benefits at minimal risk to Council. agreeing to put forward the Bill is
an easy choice.
3) Financial Implications and Budgetary Provision
Nil: Top Energy would pick up all costs associated with the
Bill.
Attachments
Nil
Compliance schedule:
Full consideration has been given to the provisions of the
Local Government Act 2002 S77 in relation to decision making, in particular:
1. A
Local authority must, in the course of the decision-making process,
a) Seek
to identify all reasonably practicable options for the achievement of the
objective of a decision; and
b) Assess
the options in terms of their advantages and disadvantages; and
c) If
any of the options identified under paragraph (a) involves a significant
decision in relation to land or a body of water, take into account the
relationship of Māori and their culture and traditions with their
ancestral land, water sites, waahi tapu, valued flora and fauna and other
taonga.
2. This
section is subject to Section 79 - Compliance with procedures in relation to
decisions.
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Compliance
requirement
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Staff
assessment
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State the level of significance
(high or low) of the issue or proposal as determined by the Council’s
Significance and Engagement Policy
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Low
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State the relevant Council
policies (external or internal), legislation, and/or community outcomes (as
stated in the LTP) that relate to this decision.
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Amendment to the Electricity Industry Act 2010 is
proposed.
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State whether this issue or
proposal has a District wide relevance and, if not, the ways in which the
appropriate Community Board’s views have been sought.
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Not applicable
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State the possible implications for Māori
and how Māori have been provided with an opportunity to contribute to
decision making if this decision is significant and relates to land and/or
any body of water.
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Not applicable
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Identify persons likely to be
affected by or have an interest in the matter, and how you have given
consideration to their views or preferences.
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Top Energy have requested Council’s assistance
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State the financial implications
and where budgetary provisions have been made to support this decision.
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Nil: Top Energy will pay all associated costs
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Chief Financial Officer review.
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The Chief Financial Officer has
reviewed this report.
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