Power chief breaks ranks

One aim of the electricity regulations is to develop and implement long-term grid investment plans. Picture / Hawke's Bay Today

An electricity commissioner has broken ranks with the rest of the watchdog's board, voicing his "fundamental reservations" over the way the commission approves investments in the national grid.

The dissent casts doubt on the Electricity Commission's rejection last week of plans by grid owner and operator Transpower to build a 400kV line through the Waikato to Auckland, linking Whakamaru to Otahuhu, in South Auckland.

Commissioner David Close, also a former Transpower director, worries the "grid investment test" - the benchmark against which the commission approves or rejects planned investments by Transpower - may not deliver on the aims of the electricity regulations. These include helping Transpower to develop and implement long-term grid investment plans.

In a note appended to the commission's draft decision on the 400kV line, Close said: "My reservations about the way in which the grid investment test has been interpreted and applied is that it tends to advantage incremental, short-term solutions and disadvantage long-term plans for major upgrades."

He later told the Business Herald: "We should be providing long-term solutions to provide certainty for customers, land owners and investors in the electricity industry."

Close, however, voted with the other commissioners to reject the proposed line because it did not meet the test. He insists the vote is a separate matter from the validity of the test itself.

Putting the proposed 400kV line on ice, the commission declared an investment of $140 million in the existing network - and perhaps the construction of new power stations near Auckland - would delay the need for the planned line until at least 2017. It said that by postponing the decision it would save the country as much as $250 million.

Transpower had costed the line at $622 million in 2010 dollars, while the commission said it would cost $709 million.

Close said the decision on the line highlighted the potential flaws in the test.

Transpower, for example, said the extra capacity the proposed line provided to the Auckland market was worth $190 million. It arrived at this figure by calculating the net benefit from giving geographically isolated generators an ability to serve New Zealand's largest market.

The commission, however, values this extra capacity at just $5 million.

"This is a very material difference. There are things that can alter the result of the test very significantly," Close said.

The outcome of the test on the 400kV line was determined by the alternatives the commission used to benchmark the proposal. Had the commission used other alternatives, it may have come up with a different answer.

"The focus of investigating alternatives has led, in my view, to evaluating [the 400kV proposal] solely as a Whakamaru-Otahuhu transmission upgrade instead of the first stage of a longer-term plan for a higher voltage over the North Island grid," Close said.

The rejection of the plan has yet to be put to the public for consultation before it is finalised in July. However, if it is upheld, Transpower will have to come up with a new plan or challenge the commission in the courts.

Electricity Commission chairman Roy Hemmingway was not available for comment.

A Transpower spokesman said Close's concerns echoed its own concerns about the test.

As the decision on the 400kV line was released last week, Transpower chief executive Ralph Craven said his company was not clear on the criteria the commission used to assess the line against other alternatives.

Transpower would struggle to put forward plans for the Waikato line and other planned upgrades - such as the upgrades in the South Island - while such uncertainty remained.

Transpower believes the 400kV line would provide an economic, reliable and secure solution to Auckland and Northland's future electricity needs.

The Electricity Commission

* Set up in 2003 and run by a board of five commissioners, including chairman Roy Hemmingway.

* Oversees the operation of the electricity industry and markets and has the power, among others, to block Transpower proposals.

* Assesses Transpower's grid upgrade plans against, among other things, a grid investment test, which looks at the net market benefits and costs of a proposal.