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Test transmission reform benefits before going any further - MEUG

Monday 11th November 2019

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Potential flaws in the cost-benefit analysis undertaken for the Electricity Authority’s planned changes to transmission pricing should be tested and resolved before the proposal is taken any further, the Major Electricity Users’ Group says.

The authority wants to change the way transmission costs are allocated so that big users can’t avoid their share of the $950 million annual bill and so that users’ charges more reflect the actual transmission assets they benefit from. In July it estimated that the change could deliver benefits worth $2.7 billion over 30 years.

But the proposals are being hotly contested by many users and Transpower, which as national grid operator is tasked with making any new charging regime workable. Major North Island consumers are resisting being charged based on the assets they benefit from, while there is a general disquiet about the authority’s proposal to move away from charges based on peak-period consumption, and aspects of its cost-benefit analysis.

MEUG, which has member companies both for and against the proposed changes, says the conflicting views of consulting economists on the CBA should be resolved through a conference of expert witnesses.

But it is resisting the calls of Transpower and others who have sought another industry-wide conference after 10 years of debate and three iterations of pricing models from the authority.

MEUG says the conference should not be a “popularity contest.” While open to the public and interested parties, they should not participate and the forum should be restricted to improving the CBA.

“If the CBA is not robust then the debate on the details is premature. What matters is whether the direction and timing of changes proposed in the draft guidelines is supported by a CBA,” MEUG says in a submission on the latest plan.

Firms’ positions on the TPM appear to be hardening as the authority strives to bring the issue to a close and after the government opted to let the current process run its course rather than intervene. The authority wants to make a decision in the new year.

Many recognise that charging South Island generators all the cost of the high-voltage link across Cook Strait discourages investment there, and that the Tiwai Point smelter pays far too big a share of transmission costs.

Most also favour transitioning to some form of benefit-based charge, but few believe those benefits can be as closely assigned to consumers as the EA believes. Many submitters expect they would require some form of regular review, given the potential for new loads due to electrification of industry and new renewable generation development.

Firms not wanting to face higher bills decry the wealth transfers that will result from applying the new rules on historic transmission investments, while firms paying higher transmission costs since 2013 want speedier remedial action.

Transpower embarked on more than $3 billion of investment over almost a decade. The work – most of it in the North Island - started when transmission pricing was already a live issue.

The state-owned grid operator has already changed the ways it manages transmission pricing in order to improve power flows from South Island generators and to get more value from the $672 million it spent building a new pole for the HVDC link.

In its latest submission on the TPM – transmission pricing methodology - Transpower reiterates its doubts that the authority’s proposal will be durable and calls for an industry-wide conference.

It believes the benefits the authority relies on for its charges cannot be accurately forecast decades ahead and says the proposal runs a “non-trivial” risk of undermining the country’s efforts to advance electrification.

Instead, Transpower says it should be possible to make “simple changes” to the current regime to “reasonably achieve a beneficiaries-pays basis” for grid investments.

“The problems the authority has identified with the current TPM can be dealt with more quickly, more efficiently and more cost-effectively through incremental reform of the existing TPM and guidelines.

“This approach would also carry a materially lower risk of unintended consequences.”


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