14 Dec 2016

National grid pricing change ahead

9:26 am on 14 December 2016

The Electricity Authority is revising its plans to change the way people pay for the national grid.

The 12,000 kilometre line costs $918 million a year to run.

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Photo: 123rf

The authority has long argued that the methods of funding this cost are unfair, with some people paying a lot for very little, and vice versa.

Its latest proposal will still direct some of the cost away from the far south, where there is plenty of power, to the Auckland area, where robust transmission wires have been installed at great cost, but were not adequately paid for by local people.

However the latest version of this reform blunts the impact of these changes, with any consequential price rise capped at 3.5 percent per household.

The proposal also contains only limited solace for the Tiwai Pt aluminium smelter, whose transmission costs will fall from $60.8m annually to $47.4m - a far smaller cut than smelter management said was appropriate.

Southland business leaders will meet with smelter representatives in Invercargill on Thursday to produce a response to this.

Another high profile user - New Zealand Steel - will see its transmission cost almost double from $4.6m to $7.6m - though this is a far smaller increase than was originally proposed.

Norske Skog will have what it called an unaffordable increase reduced to $1.3m under the new proposals - but that is still higher than the zero cost it paid before.

Meanwhile, these companies could still benefit from a happy accident when another regulator, the Commerce Commission, reviews electric lines companies in 2020.

The Authority expects the commission will order local lines companies to reduce their prices at that time.

This is because lower interest rates have pulled down the cost of line company borrowing, from 7.19 percent to 5.32 percent.

A lower cost of capital would lead to lower prices for transmission, and the Authority chief executive Carl Hansen said the impact of this would be far greater than his own reforms.

Mr Hansen said he planned to implement his own reforms at the same time as the Commerce Commission sets its new prices in 2020.

Even without any action from the Commerce Commission, the latest proposals from the Electricity Authority would cause transmission costs to fall for 12 of 29 regions of the country.

Adding the impact of the Commerce Commission, prices would fall in 28 out of those 29 regions.

Only Ashburton would get an increase.

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