Path cleared for aluminium smelter to get discount on $64m annual Transpower bill

Tuesday, 11 February 2020

Consumers and regular businesses will foot the bill if the Tiwai Point aluminium smelter is offered a discount on its electricity transmission charges, Vector chief executive Simon Mackenzie has warned.

The Tiwai Point aluminium smelter was thrown a lifeline by the Electricity Authority on Tuesday as majority owner Rio Tinto nears its decision on whether to scale back or close down the plant with the loss of up to about 800 jobs.

The Electricity Authority has announced it is considering a rule change that would make it easier for a small number of big businesses, such as the smelter, to claim a discount on their electricity transmission charges.

A proposed rule change could slash the aluminium smelter's electricity lines charge.

But Mackenzie queried the move to 'lower the bar' for discounts.

'What it means … is that other consumers across the country are going to pick up the cost.'

**READ MORE:

Smelter wouldn't need to prove it really would bypass the national grid to get a discount - just show it was cheaper in theory.

* Rio Tinto says 'nonsense' in electricity code a barrier to saving Tiwai Point smelter

* 'Surplus' power from smelter could be freed-up for South Island in 2022

* Tiwai smelter closure back in Government's court as Rio Tinto pleads for power price drop**

The proposed rule change would allow power users to claim a 'prudent discount' from Transpower on their transmission charges by capping their bill at the price they would need to pay to have their businesses connected to power stations using their own dedicated transmission lines.

Contact Energy chief executive Dennis Barnes said it supported a pragmatic approach.

New Zealand Aluminium Smelter (NZAS) paid $64 million to Transpower last year, so the potential benefits to the smelter could be sizeable.

Rio Tinto would not comment.

But NZAS chief executive Stewart Hamilton said in December that the smelter was using only 2 per cent of the electricity grid to source its power, most of which comes from Meridian Energy's Manapouri hydro scheme 150 kilometres away, while it was paying for 7 per cent of the costs of the national network under existing price rules.

The smelter consumes about 13 per cent of the country's power.

The change proposed by the Electricity Authority would remove an existing rule that means the smelter would currently need to prove to Transpower not only that it would be cheaper in theory for it to build its own power lines to the smelter, but also that it had a viable business plan to do that.

The Electricity Authority did not say it was considering the rule change specifically to help keep the smelter open.

New Zealand Aluminium Smelter's chief executive Stew Hamilton has highlighted the smelter's lines charges as an obstacle to it remaining open.

But it indicated it had listened to Rio Tinto's argument that it would be 'impossible' for it to obtain resource consent for construction of a duplicate transmission link 'through the pristine wilderness'.

Rio Tinto has said it expects to reach a decision on the future of the smelter by the end of March.

The Electricity Authority has invited submissions on its new prudent discount policy by March 3.

The authority indicated it expected the rule change would only benefit a smaller number of major power users, as they would still need to prove it would be cheaper for them to have their own dedicated power lines rather than paying their current bills towards the shared infrastructure of the national grid.

Its discussion document confirmed other electricity users would pick up the bill for any discounts businesses obtained under the revised discount scheme.

'The prudent discount would be recovered through the residual charge, spread across all load customers,' the authority stated.

Contact Energy chief executive Dennis Barnes said on Monday – on the eve of the Electricity Authority's announcement – that it supported a 'pragmatic' approach to prudent discounts.

It was 'sympathetic to the smelter's plight where they use a small proportion of the national grid but pay for a large proportion', he said.

A spokeswoman for Energy Minister Megan Woods says she was informed about the proposed discount rule change but that it was an operational matter for the Electricity Authority.

Like other major electricity retailers, Contact has seen its share price weighed down by concerns that the smelter could suddenly cut back its operations, unleashing a large amount of excess electricity generation on to the market.

Mackenzie said it was 'questionable' that the discount policy appeared to be the main topic raised by the authority in its latest round of consultations over transmission pricing 'when there are a whole lot of other material issues that haven't seemed to have been given any air time'.

He has previously accused Rio Tinto of having 'amnesia' about the price it was paying for power, which he estimated was about 5 cents per kilowatt hour – less than a quarter of the price paid by most consumers.

'This just looks to me to be further potential adjustments that are another allocation of costs to consumers,' he said.

Hamilton has indicated that NZAS is seeking about a one-third reduction in the price it pays for power, in addition to lower transmission charges.

He told the Electricity Authority in December that the smelter had asked Energy Minister Megan Woods to work with the Electricity Authority, Transpower and government officials to see whether the 'prudent discount' policy could be applied to its case.

But a spokeswoman for Woods indicated she had not intervened.

'Minister Woods is informed about this, but it is an operational matter for the Electricity Authority,' her spokeswoman said.

Rio Tinto's Australian-based energy director Lesley Silverwood had described the existing 'very, very specific' rules currently governing prudent discounts as a 'nonsense'.

'There is no way on earth we could get permission to build a duplicate line through to Manapouri,' she told the authority in December.