Transmission pricing impasse deepens, Transpower proposes new answer

Tuesday 9th August 2016

Electricity producers, carriers and consumers remain as divided as ever over the Electricity Authority's latest attempt to reform how the national grid is paid for.

The state-owned grid operator, Transpower, is proposing an alternative "simplified, staged approach" to try and solve the long-running impasse.

The EA today published submissions on its latest proposals for a new transmission pricing methodology (TPM), which revealed fresh divisions over how to ensure the costs of the wires that carry electricity from power stations to all parts of the country are allocated fairly, with objections driven largely by whether or not the submitter's region would be better or worse off.

Meanwhile, Transpower says in its submission it doesn't believe the EA's proposals can be implemented by April 2019, as proposed, that they are more complex than necessary and that some elements of the proposals risk unintended consequences, especially if rushed.

"We think a simplified, staged approach could better address the problems identified by the Authority - sooner, with less cost, risk and disruption - while implementing key features of the Authority's proposals," says Transpower, which is effectively the only neutral party in the debate, since it gets paid the same total sum for providing the national grid, irrespective of where those payments come from.

A simplified, staged approach would also help "avoid potentially intractable debates and lobbying regarding the assessment of private benefits for sunk investments, and directly addresses concerns that local signals for generators are poorly targeted", Transpower says.

The TPM issue has been running in one form or another since the establishment of the wholesale electricity market 20 years ago.

Crudely put, that's largely because proposed reforms advantage the lower South Island - particularly Meridian Energy and the Tiwai Point aluminium smelter - at the expense of the upper North Island, meaning Auckland and major industrial users such as New Zealand Steel face higher grid costs.

The argument is that upper North Island generators and consumers are the greatest source of demand for electricity and the biggest beneficiaries from recent investment to upgrade the grid.

However, that pits major industrial electricity users against one another. The Rio Tinto-controlled smelter at Bluff argues it pays too much already in grid costs and expects a cut, while Bluescope's New Zealand Steel operation at Glenbrook, south Auckland, is also seeking to cut its costs to maintain international competitiveness and is fighting any increase in grid costs.

Meanwhile, Tauranga-based generator-retailer Trustpower has already filed for a judicial review of the EA's consultation process, saying the latest proposals will impose large, unquantified additional costs.

Typical of the divisions within normally allied lobbies is the difference between the submissions from the national business lobby, Business New Zealand, and its Auckland affiliate, the Employers and Manufacturers Association.

BusinessNZ welcomes the ongoing effort to reform the TPM, saying the current regime is "unsustainable and has been for some time", that "reform is overdue" and that "every year reform is delayed contributes to an ongoing misalignment between those who benefit and those who do not and entrenches inefficiencies in the provision and use of transmission infrastructure".

The EMA, however, says it "cannot support the EA's proposal for drastically altering the TPM regime".

"How a third-tier regulator thinks it is in a position to determine national good is a question government may want to consider more closely, especially since the current pricing has been in place for the national good since the electricity network was first completed".

"From the EMA's viewpoint, it looks more like the Authority have solved a small issue for Meridian (a $57 million per annum windfall), Contact (Energy) and Tiwai Point ($21 million-plus per annum) by turning it into a larger issue for the rest of the country and blaming a need for greater security in the Auckland network as justification for the change".

The EMA submission suggests this is no more than a political argument since "blaming Auckland tends to play well for the rest of the country".

BusinessDesk.co.nz

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