16 May 2016

Electricity industry shake-up on the cards

8:58 am on 16 May 2016

The electricity industry could be in for a shake-up this week, with a big announcement due tomorrow at 10am.

power pylon

Photo: RNZ / Diego Opatowski

At stake is who pays the $1 billion a year that it takes to run the national grid.

At present, 9.9 percent of a typical power bill goes to Transpower to meet that cost.

That percentage is the same for all consumers, whether they live at the far end of a 1000km power line or just down the road from a hydro dam.

A paper presented last year by the Electricity Authority took exception to this, suggesting that people who benefit most from a service should pay the most for it, and that cross subsidies can hinder sensible investments.

The paper suggested reforms could produce better efficiency by providing incentives so that the right investments occur at the right time, and in the right place.

That paper was opened up to submissions, and the Electricity Authority's response to them will come out tomorrow.

Andrew Harvey-Green of the broking and research firm Forsyth Barr said industry response to the proposed changes was favourable and it was likely the one-size-fits-all model would be changed.

Advisory company Energy Link also said the Electricity Authority would press ahead with its proposed changes to the current model.

Its managing director Greg Sise said there were clear signs of this.

"Based on all the signals from the Electricity Authority to date, I am picking that the Transmission Pricing Methodology will go significantly towards a beneficiary-pays approach rather than a one-price-for-everyone that is in place at the moment," he said.

"It is likely to produce much more efficient investments in transmission assets over time."

In its proposal last June, the authority estimated some power bills would fall and some stay the same. However Auckland and Northland would pay 4.5 percent more and the Far North and the West Coast 10 percent more.

But it said consumers in the North should remember they were the beneficiaries of more than $1.3 billion of transmission investment in recent years.

As a result, Auckland had higher levels of reliability than the rest of the country, which was costly to provide, and Aucklanders were clearly the beneficiaries of that reliability.

Consumers in the South Island will save money from the changes, including the aluminium smelter, which could save $50 million a year.

However, Forsyth Barr's Andrew Harvey-Green suggested a compromise version could cut the smelter's benefit to $30 million.

This week's announcement is expected to support the principle of change, but hone down several options to a preferred one, which will then be opened for further public debate.

However whatever is finally chosen could be challenged in the courts and could take years to implement.