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Electricity panel warned against politicising transmission pricing

Monday 8th April 2019

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One of the country’s smallest electricity network companies has urged the government’s electricity pricing review panel not to invite politicians into the debate on transmission pricing.

Waipukurau-based Centralines says the panel’s suggestion that a government policy statement might help resolve the industry’s decade-long debate over the allocation of transmission costs should be “approached cautiously.”

The company says it is up to the Electricity Authority to neutrally assess the different proposals against its statutory objectives. Whatever system is adopted some parties will be disaffected

“Contrary to the panel’s view that the government is best placed to choose the beneficiaries of transmission pricing reform, Centralines’ view is that it is best not to politicise wealth distribution issues,” the community-owned company said in a two-page submission.

“If there is no change, Centralines will remain highly disaffected by the current approach, given the significant investments that have been made which benefit the upper North Island, the costs of which are currently socialised across all New Zealanders.

“Centralines serves a relatively disadvantaged population, but since 2010 has seen a 50 percent increase in the transmission charges that it must recover from its consumers.”

National grid operator Transpower will charge about $970 million for transmission in the coming year, a service that typically accounts for about 10 percent of a household power bill.

Transmission pricing includes a bundle of charges for different types of assets and services – some of which have already been changed in recent years to allocate costs more efficiently and to free up South Island generation.

But much of that cost is spread across all users, with the result that firms and households in most of the South Island and parts of the North Island are paying for – but getting little benefit from - more than $2 billion that was invested in the past decade upgrading the power link across Cook Strait, the lines around the Wairakei geothermal fields, the lines from Whakamaru into Auckland and the lines through Auckland into Northland.

The Electricity Authority wants to try and apportion charges based on the benefit consumers actually receive. It also wants to move away from charges that are based on peak-usage, which it believes will become easier for firms to avoid with the use of batteries and other technologies, in turn pushing a bigger share of those transmission costs onto other users.

The authority’s plan will increase costs for firms and households in much of the North Island, but particularly in Auckland and Northland. Others – particularly the Tiwai Point smelter in Bluff and Meridian Energy - will save money.

Transpower recognises the need for further change in transmission pricing but doubts, with many in the industry, that the authority’s proposals are workable.

The grid operator also wants to retain peak-based charges, which help flatten demand and make better use of assets, and to take a more incremental approach to any changes.

It says a circuit-breaker is needed in a process that has gone “around in circles for seven years, with the ever-present threat of litigation.”

The question of how assets are to be charged for, and down to what level, are essentially political, not regulatory, it says.

“They go to the redistribution of wealth between regions in New Zealand and between groups of New Zealanders. It is not fair to ask a regulator to make them, let alone expect a regulator to achieve industry buy-in and consensus.”

Most of the industry agrees that too much time has been spent on transmission pricing. But submitters are mixed on whether a government policy statement will actually help.

Many, like Contact Energy, are concerned that the time taken to develop a policy statement could result in further delays.

The authority, while not accepting the need for a policy statement, said that if there is one, it should be short, aimed at delivering efficient grid investment, and unambiguous.

“We suggest that direction be provided on issues that focus squarely on policy aspects that may also have potentially controversial distributional consequences, such as the recovery of the cost of historical assets.”

Tauranga-based Trustpower is part of the TPM Group, formed in 2016 to oppose the authority’s planned changes to transmission pricing. Other members include paper makers Norske Skog and Oji Fibre solutions, and network companies including Auckland-based Vector, Whakatane-based Horizon Networks, Whangarei-based Northpower and Kerikeri-based Top Energy.

Trustpower has proposed its own government policy statement. It would require grid efficiency to be tested on a national basis and would require power networks and directly connected loads to pay a standard nationwide charge for interconnection assets.

Trustpower says the authority’s benefit-based charges are overly complex, highly assumption-dependent, and may not send clear pricing signals. They would not cater well for the exit and entry of customers and their adoption would likely penalise firms that have invested on the current transmission rules, it says.

It supports Transpower’s proposal that all generators should meet the cost of the high-voltage link across Cook Strait – as opposed to only the South Island generators at present – but otherwise doesn’t think generators should face new costs.

“We think that charging generators will only serve to delay investment in new generation. This is because wholesale prices would need to rise higher than they would otherwise before new investment becomes economic and development occurs.

“Given that these transmission costs would be passed through to consumers via higher wholesale energy costs, it is more efficient to sheet them home directly to end-consumers – and to ensure they are not inflated in the pass-through.”

The panel is due to report back to the government by the end of May.


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