By Bernard Hickey

The Electricity Authority (EA) has proposed changes to the way transmission costs are paid for that would increase residential power bills by up to NZ$100 per year in Ashburton, Auckland, Northland and Westland, but lower charges in areas such as Invercargill, Nelson, Christchurch, Wellington and Gisborne by as much as NZ$50 per year.

The changes are also estimated to reduce the transmission costs for Tiwai Smelter owner NZ Aluminium Smelters (NZAS) by as much as NZ$21 million per year, and would also reduce transmission charges paid by Meridian Energy, which owns hydro-electric power plants in the South Island. Meridian Energy's share price rose 3.3% in morning trade.

The changes are proposed in two consultation papers on how the Authority sets pricing for the transmission of electricity on the national grid owned by Transpower, and for transmission on local electricity distribution networks, described as distributed networks.

The EA said the current Transmission Pricing Methodology (TPM) was complex and sent the wrong signal to power users.

NZAS and Meridian have lobbied for changes to the existing system, arguing they overpaid for improvements to the national grid in ways that benefited the North Island and other remote areas in ways those regions hadn't paid for. The changes in the transmission pricing regime were seen as crucial to the future of the Tiwai Point smelter. An earlier proposal had suggested NZAS' transmission costs could fall by more than NZ$50 million a year, so the NZ$21 million reduction may be disappointing for the smelter's owners Rio Tinto.

"The current TPM encourages wasteful use of the transmission grid, and investment in transmission and generation assets that is not in the best interests of electricity consumers and the New Zealand economy. The economic cost to New Zealand exceeds NZ$200 million," EA CEO Carl Hansen said.

"If no change is made, in the future consumers could pay hundreds of millions of dollars more for electricity than necessary," Hansen said.

The EA would replace the TPM and Distributed Generation charges with an ‘area-of-benefit’ charge, which would allocate the cost of a transmission investment to generators, distributors and industrial consumers located in areas of the country that benefited from the investment. A ‘residual’ charge would cover Transpower’s overhead costs and the cost of any grid assets not recovered by the area-of-benefit or other transmission charges. The residual charge would apply to distributors and industrial consumers only.

15 gainers and 14 losers

“Over time the proposal will reduce costs in the electricity industry and reduce prices for consumers from what they would otherwise be. The immediate overall impact of the proposal on the average residential electricity bill is fairly modest. In 15 regions, electricity consumers’ bills will decrease. In the remaining 14 regions, the average bill increase is less than $50 per year," Hansen said. (See more in the charts below)

“The regions where consumers will see an increase in their bills are those that have benefited from substantial recent grid upgrades to improve service levels, or where transmission prices have been lower than average. In every region, the benefit from these recent investments greatly exceeds the area-of-benefit charges proposed to pay for them," he said.

“Under the current TPM consumers that have had little or no benefit from these investments have faced higher costs of electricity to pay for them. Not surprisingly, this has made the current TPM contentious. The Authority believes that after an initial settling-in period, the new approach will improve the acceptability and durability of the TPM.”

Hansen said the EA believed consumers were paying distributed generators between NZ$25 million and NZ$35 million each year which they are not receiving any benefit in terms of reduced transmission costs. The EA estimated its proposal would mean consumers paid up to NZ$325 million less in charges than would otherwise occur over the first 15 years.

If adopted, the change would be phased in beginning 1 April 2017 and the changes would be phased in by April 2019.

Here some charts provided by the EA which describe how the changes would affect various regions, lines companies and big power users and generators.

Political reaction

Green Energy Spokesman Gareth Hughes said the proposals would force some households to pay more for power to subsidise big business users and make it even harder for families to warm their homes in winter.

“The fact is, higher power prices make for colder families and sicker children in winter,” Hughes said.

“The Electricity Authority should be treating the electricity network as a national asset for the benefit of all New Zealanders, not playing people who live in different regions off against each other while cutting the Tiwai Point aluminium smelter’s power bill by $20 million," he said.

“Allowing major industrial users more scope to ask for special discounts, which households will have to subsidise, is blatantly pitting the interests of big businesses against families having warm homes in the winter. Parts of the Electricity Authority’s document read like people will just up and move their lives around the country to maximise economic efficiency in the power grid, which is ridiculous."

Hughes also criticised the EA's proposals, which he said appeared to push back against a global trend towards distributed generation.

"The Electricity Authority seems to be trying to get New Zealand to go the other way by slashing the incentives to produce power locally," he said.

“Discouraging local distributed generation is likely to actually increase transmission costs in the long term, because we’ll have to keep paying to upgrade the lines to carry power in from far away."

New Zealand First attacked the proposal as guaranteeing the fat salaries of the big power companies.

“Instead of acting in the interests of all New Zealand the authority’s plan for power transmission charges disadvantages many Kiwis and ignores the obvious and fair solution – smoothing transmission line costs, that is, everyone pays the same price," NZ First's Fletcher Tabuteau said.

“This can be done by using the $194m plus in profits generated by Transpower. Instead, Kiwi households are paying the cost for its poorly considered infrastructure investment while foreign-owned Tiwai Point aluminium smelter is likely to benefit by reduced charges of $21 million," he said.

“We are all Kiwis, our forebears built the power stations, and we should all reap the benefits. Privatisation, the drive for profits and big salaries have ripped equality out of the power industry."

(Updated with political reaction)