Financial Transmission Rights and the Allocation of Loss and Constraint Rentals
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Government Policy Statement on Electricity Financial Transmission Rights
Index of documents relating to the GPS on Electricity Financial Transmission Rights. The GPS was superseded by the October 2004 GPS on Electricity Governance.
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Financial Transmission Rights for New Zealand: Issues and Alternatives
This report has been prepared for the New Zealand Ministry of Economic Development, in order to assist in developing an understanding of, and position with respect to, recent proposals by Transpower to implement a Financial Transmission Right regime.
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Financial Transmission Rights Summary Statement
The current methodology for loss and constraint rentals, combined with the absence of tradable FTRs, is producing unsatisfactory outcomes, particularly for regions experiencing significant constraints on import flows, and is impeding competition.
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Financial Transmission Rights for New Zealand: Issues and Alternatives
This report has been prepared for the MED, in order to assist in developing an understanding of, and position with respect to, recent proposals by Transpower to implement a Financial Transmission Right regime for the New Zealand electricity market.
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Comments on the Draft Report
The following comments were received by the Ministry on Dr Read's draft report.
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Background Papers
The following papers were provided to the Ministry as part of the consultation process that led up to the release of Dr Read's draft report on financial transmission rights.
Latest Documents
Background
The Government Policy Statement: Further Development of New Zealand's Electricity Industry (February 2002) ("GPS") makes the following statements relating to losses and constraints:
Paragraph 5:
The Government is seeking the following specific outcomes:...(f) transmission losses and constraints are signalled to ensure that overall costs to the economy, including the costs of insufficient competition in local regions, are minimised.
Paragraph 20:
The Government supports the development of innovative financial instruments, such as financial transmission rights, so that market participants can better manage risk in respect of transmission losses and constraints.
Paragraph 14 of "Attachment 1: Objectives and Principles for the Provision of Transmission Services":
The Government expects transmission services to be priced efficiently, and to this end:
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- pricing for new entrants should provide clear locational signals;
- sunk costs should be allocated in a way that minimises distortions to production/consumption and investment decisions made by grid users; and
- the overall pricing structure should include a variable element that reflects the marginal costs of supply in order to provide an incentive to minimise network constraints.
All of these paragraphs were originally published in identical form in the December 2000 version of the Government Policy Statement.
Transpower has developed a Financial Transmission Rights (FTR) product and is seeking to introduce the product. Funding for the product comes from Transpower's receipt of the loss and constraint excess collected by the clearing manager in the New Zealand Electricity Market (NZEM) (see www.nzelectricity.co.nz and www.transpower.co.nz for further information).
A number of generator-retailers have concerns with the design of the FTR product, and an NZEM rule change proposal was drafted with the intended effect of preventing Transpower from introducing the FTR product.
In March 2002, the Ministry of Economic Development engaged Dr Grant Read to produce a report on financial transmission rights and the allocation of loss and constraint excess (rentals), and on the best way forward on these issues from a public policy perspective.
Dr Read considered a selected subset of background documents and engaged in brief discussions with key industry participants and major users before producing a draft report on 5 April 2002. Comments on the draft report were received and further discussions followed before the release of the final report and a draft summary statement on FTRs were published on 16 May 2002.
Comments on the draft summary statement on FTRs were sought from interested parties by 31 May 2002.
Following the receipt of submissions and further discussions, the Ministry developed a draft Supplementary Government Policy Statement on Electricity Financial Transmission Rights. This draft was circulated to industry and consumers for a second round of consultation on 10 July 2002 along with a letter from the Minister of Energy. Submissions on the draft were received by 19 July 2002.
On 9 September 2002, the Ministry sent by e-mail a letter to electricity industry chief executives and major electricity users regarding Electricity Financial Transmission Rights. The letter sought comments on the attached draft Supplementary Government Policy Statement on Electricity Financial Transmission Rights (dated 6 September) by Wednesday 18 September. Submissions have been received and considered.
On 30 October 2002, the Ministry published a response to those submissions and a final draft of the Government Policy Statement on Electricity Financial Transmission Rights.
The Government Policy Statement on Electricity Financial Transmission Rights was released by the Minister of Energy, Hon Pete Hodgson, on 11 December 2002. It is identical to the "final draft" except in one minor respect (the reporting date in paragraph 23 was changed to 28 February 2003).
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