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Appendix A: Estimates of Costs

With an NPS that affects the plans of 73 territorial authorities and 12 regional councils, it is not feasible to provide a detailed cost-benefit analysis. The following tables simply illustrate estimates of the sort of resource costs incurred under the current status quo, and how they might be expected to change under the objective and policies of the NPS. Where able, approximate costs / benefits have been estimated, where not, the costs / benefits are described in terms of small, medium and large.

A.1 Summary of quantifiable costs and benefits

The main features of the quantifiable costs and benefits are:

  • the 10 percent Net Present Value is applied as a discount rate

  • the costs are mainly over 10 years or less, reflecting the time taken to change plans and behaviour in line with the intent of the NPS

  • the benefits are expected over the life of network (30 years) although they taper off after year 10.

Table A.1 below details those quantifiable costs and benefits, while the remaining parts of the appendix examine quantifiable and unquantifiable costs and benefits in relation to the main stakeholders.

Table A.1: Approximate quantifiable costs and benefits ($ millions, NPV 10%)

  Costs Benefits
Transpower

Plan advocacy / managing third parties

0

8.3

Operations / new lines

0

1.8

Councils

Changing plans

2.7

0

Appeals

0.5

0

Managing third parties

0.9

0

Government

Support

0.167

0

Land owners

Direct and transaction costs

2.8

0

Total costs and benefits

7.0

10.1

Total net costs or benefits   3.0

Note: Numbers are approximate, also numbers have been rounded, therefore do not sum exactly.

Source: NZIER

 

1

2

3

4

5

6

7

8

9

10

11

12

13

14

 

Expected cost impacts of NPS policies

Status quo

Policies
1 2 3 4 5 6 7 8 9 10 11 12 13 14

Transpower

 

Plan advocacy

Confidential

$230,000 net benefit in first year

Managing third parties

$5,500,000 per year

B small

B small

B small

C medium

B medium

C medium

C medium

C medium

B small

$630,000 benefit in first year

B small

neutral

B small

Operation costs / new lines

$2,000,000 per year

$200,000 net benefit in first year

Councils

   

Plans (1)

0

$846,000 cost in first year (over four years)

 

Consent / appeals

0

$100,000 cost in first year

Managing third parties

0

C medium

B small

C small

B small

$200,000 cost in first year

C small

Neutral

C small

Government

 

Policy

0

B small

C small

B small

C small

B small

Neutral

C small

Support (2)

0

$100,000 cost in first year and $200,000 cost all together

Land owners

 

Direct and transaction costs

0

C medium

B small

B medium

Neutral

520,000 cost in first year

Neutral

C small

Consumers

   

Direct costs / benefits

?

B small

C small

B small

Neutral

Environment

 

Local adverse effects

0

Neutral

C medium

B medium

C small

B medium

Neutral

B small

Neutral

Others / generators

 

Direct costs / benefits

0

B small

C small

B small

C small

B small

Neutral

Notes:

(1) One-off costs for plan adjustment $20,000 x 12 regional plans; $75,000 x 73 district plans. This is expected to impact on 60% of councils

(2) $100,000 in first year; $50,000 in each of next two years

B Unquantifiable benefit

C Unquantifiable cost, negative impact

? Probable effects, but no information on amount or balance of positive / negative

A.2 Transpower

A.2.1 Plan advocacy / consents

Under the status quo, plan advocacy (including appeals to the Environment Court) costs are confidential but substantial on a per annum basis. They include consultants, transaction costs with councils and the equivalent of one internal full-time equivalent for Transpower.

Under all policies, we expect benefits in the range of $230,000 in the first year with the introduction of the NPS. The benefits will grow over the first 10 years because of the upgrade of the national grid, then taper off over the life of the transmission assets (the next 30 years). This is because the NPS reinforces the need for regional and district councils to take into account the national benefit from the enhanced integration of the transmission network. This adds weight to Transpower’s arguments, particularly where it advocates a more consistent treatment of transmission activities across councils.

One risk to the benefits is that the NPS gives no specific direction as to how it should be taken into account when dealing with planning rules.

Further consideration will have to be given to environmental concerns; therefore Transpower is expected to incur unquantifiable costs because of Policies 4, 6, 7 and 8. Other policies are likely to clarify rules and either be neutral or add a small benefit.

A.2.2 Managing third parties

Under the status quo, third-party costs are approximately $5,500,000 per annum. The benefits of the NPS are approximately $630,000 in the first year and remain substantial over the first 10 years, then taper off over the life of the network. This includes monitoring of district plan changes (one full-time equivalent internally, consultant costs and information booklets) and dealing with excavations, earthworks, vegetation and mobile construction activities that either interfere with the running of the network (within a buffer zone) or have the potential to interfere with the network.

Under Policies 1, 2 and 3 Transpower will gain a small benefit; however, it is under Policy 10 and particularly Policy 11 that Transpower will gain from some protection from third-party activities on transmission assets. This is likely to be significant since part of the intent of the NPS is to change the behaviour of land owners around transmission lines. The policies aimed at safeguarding the environment (Policies 4, 6, 7 and 8) will have an unquantifiable cost for Transpower since it is required to consider environmental effects, particularly related to new line development. Other policies are likely to clarify rules and either be neutral or add a small benefit.

A.2.3 Operations / new lines

The main benefit for the development of new lines / operations comes from Policies 1, 2 and 3. The benefit could be as much as $200,000 in the first year for reduced transaction costs with councils. These policies give clear direction to councils (although it remains to be seen how councils react to that direction).

A.3 Councils

A.3.1 Policy and plans

Under the status quo, no information is held on average council costs.

Under all policies, a cost of $846,000 (plan changes will have to be made by 60 percent of councils and are spread over four years). This equates to $20,000 per regional council and $75,000 per district council.

Other policies are likely to have either a small benefit or cost.

A.3.2 Appeals

Under Policies 1, 2 and 3, a cost of $100,000 is expected in the first year as land owners test the intent of the NPS in the Environment Court. This is likely to increase slightly in the following two years and then drop to $50,000 per year. After year 10 a small benefit can be expected since the NPS intent will have been clearly signalled through the Environment Court and land owners will have clarity about what they can and cannot do near transmission lines (reducing transaction costs between councils and land owners).

A.3.3 Managing third parties

Under the status quo, no cost information is held on councils. Under Policies 1, 2 and 3, a medium cost is expected since these policies signal a change in behaviour from the status quo when operating around transmission lines.

The most significant costs will occur under Policies 10 and 11 where the NPS details the restrictions on land owners. In the first year, the costs are expected to be approximately $200,000 rising to 250,000 in year 3. While these costs taper off towards year 10, they are significant.

Other policies are likely to result in either a small benefit or cost.

A.4 Government

Under all policies, there are costs in developing policy and some benefits, mainly due to increasing security of supply.

For supporting the NPS, under the status quo, there are no costs. For all other policies, a one-off cost of $200,000 is expected to be spread over the first three years.

A.5 Land owners

No information is held on the status quo costs in any of the categories for land owners.

Under Policies 1, 2 and 3, there are costs for land owners. This is because these policies require land owners to recognise the national benefits of transmission. However, the main costs for land owners fall under Policies 10 and 11. These policies have a specific intent to modify the activities of land owners with a buffer zone. Costs are both:

  • transaction costs with councils (consenting, appeals and so on); and

  • direct costs (modifying economic activity).

Therefore, we expect costs be to approximately $500,000 per annum for the first three years and $400,000 for the remaining seven years. These costs are mitigated somewhat because the location of transmission assets has been factored into the purchase price of the land – in the same way easements are for other properties. Further, the general principle of ‘buyer beware’ applies to purchasing property that is located close to transmission assets.

A.6 Consumers, generators and others

No information is held on the status quo costs in any of the categories for other interested parties. Under Policies 1, 2 and 3, some benefit is expected for consumers, generators and other interested parties. This would be in the form of security of supply and improved utilisation of the network.

Under all the policies, costs are expected because interested consumers, generators and others will have start-up costs associated with understanding how the NPS affects district plans (all of which have variable treatment of transmission lines).

Overall, a small net benefit is expected.

A.7 Environment

Costs associated with the status quo are nil.

Under Policies 1, 2 and 3 there may be environmental costs, although the NPS will not preclude appropriate controls being in place to avoid, mitigate or remedy effects. Because of this mitigation process, a small net benefit is expected (Policies 4, 6, 7 and 8).