Some consumers will pay more with new way to carve up Transpower's $1b bill

Tuesday, 9 June 2020

NZAS chief executive Stewart Hamilton makes the case for intervention to save the aluminium smelter in October.

The Tiwai aluminium smelter has been thrown a lifeline but there will be winners and losers across the country after the Electricity Authority confirmed new rules for paying Transpower's transmission bill.

The authority estimates some consumers will need to pay up to an extra $41 a year for power, while others would save almost $80 a year as a result of its decision to require electricity users to pay an amount that is closer to the actual cost of their grid supply.

At present, Transpower's costs, which near $1b a year, are built into people's power bills and are more averaged-out across the country.

The Electricity Authority has been mulling over how Transpower's bill should best be divided up since 2009.

* Talks intensify for deal to 'save' aluminium smelter as minister says she's not intervening

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

The biggest losers will be power uses served by Network Waitaki, The Lines Company south of Hamilton, Horizon Energy in the Eastern Bay of Plenty and Westpower, all of whom face an annual power bill rise of more than $30 a year.

By far the biggest winners will be consumers served by Electricity Southland who should see their bills come down by $78 a year.

The changes won't take effect until April 2023.

A clause to protect consumers against 'price shock' will ensure no-one's total electricity bill increases by more than 3.5 per cent as a result of the changes.

Energy Minister Megan Woods said she would seek advice on the Electricity Authority's long-awaited decision.

BusinessNZ Energy Council executive director Tina Schirr said it was now 'time to look forwards, not backwards'.

But a statement released by a group of interested parties including the Employers and Manufacturers Association, 'Federated Farmers Northland and Auckland', Vector and Trustpower blasted the decision.

The statement said the new rules would 'hurt vulnerable households and businesses and must not proceed' and that the benefits the authority had identified were 'simply not real'.

Energy Minister Megan Woods did not rule out the group's call for a 'government policy statement' that might mean the Electricity Authority's ruling was not the final word.

23012018. News. Robyn Edie. Southland Times/Stuff. Aerial photo with Bluff township and Bluff Hill, back, and Tiwai Aluminium Smelter front. Bluff habour centre and the Tiwai wharf.

However, neither did she talk up the prospect of intervention.

'There is no perfect solution to transmission pricing that satisfies everyone and it is not unexpected that there are those who are unhappy with the rules released today, just as there are those who are unhappy with the current rules,' she said.

'The option of a government policy statement is something I am seeking advice on, including the extent to which the Electricity Pricing Review panel’s final recommendations have already been applied in the pricing methodology released today.”

As expected, the Electricity Authority has separately approved a new 'prudent discount' policy.

That will allow the Tiwai aluminium smelter and potentially other major power users to cap their Transpower bill at the price they might theoretically need to pay to connect their facilities to power stations using their own dedicated power lines.

It is understood the smelter's majority owner, Rio Tinto, has argued its annual bill from Transpower could fall from $64 million a year to just $28m a year, but Transpower – which will be responsible for calculating the discounts – has said any calculations would be complicated.

New Zealand Aluminium Smelter chief executive Stew Hamilton said it was exploring the new guidelines released by the Electricity Authority 'and how they could deliver relief for NZAS from very high transmission costs'.

But he said that with Transpower yet to develop the detailed rules for prudent discounts 'it does not appear to include any relief for NZAS in the short term'.

Electricity Authority chief executive James Stevenson-Wallace acknowledged its decision on how best to pass on the costs of maintaining and upgrading the national grid to electricity users had dragged on for more than 10 years.

'There is no single option that will deliver consensus,' he said.

But the Electricity Authority believed its new pricing regime would deliver economic benefits of $1.3b over 30 years.

Stevenson-Wallace said it would see an end to charges that 'act like a tax on South Island generators', would reduce peak power prices, and encourage 'the right investment' in renewable generation.

'The current approach spreads the cost of most transmission assets across the country regardless of benefit,' he said.

'Some consumers are being overcharged at peak time for no good reason.

'It is the equivalent of paying a road congestion charge to discourage travel when there is no sign of gridlock.'

Under the new system, transmission prices would signal the 'true cost of using the grid' with the cost of grid upgrades paid for by those who would benefit from them, he said.

Securing a reduction in transmission costs appeared to be one of Rio Tinto's main objectives when it announced a 'strategic review' of the smelter in October and warned that it might close the plant which employs more than 800 Southlanders.

Rio Tinto – which wouldn't comment on Tuesday on when its review might be completed – has also been seeking about a one-third reduction in the price the smelter pays to Meridian and Contact Energy for power, from its current price which is believed to be about 5 cents per kilowatt-hour.

Stevenson-Wallace said it would be up to the smelter to apply to Transpower for a discount and it would 'be over to Transpower' to decide whether to grant one.

'At this point in time no-one can say with certainty whether [the smelter] will receive one.

'But there will be a prudent discount policy and it will be based on sound economic principles,' he said.

WINNERS

Electricity Southland: $78 a year reduction in each customer's power bill

Centralines: -$22

Electricity Invercargill: -$20

Wellington Electric: -$19

Eastland Network: -$18

Electricity Ashburton: -$16

Marlborough Lines: -$13

Scanpower: -$13

Waipa Networks: -$12

Alpine Energy: -$6

Powerco: -$5

Unison Networks: -$1

LOSERS

Network Waitaki: $41 a year increase in each customer's power bill

The Lines Company: $38

Horizon Energy: $34

Westpower: $34

Electra: $27

Nelson Electricity: $23

Network Tasman: $20

Aurora Energy: $20

Top Energy: $19

OtagoNet: $14

MainPower: $13

Orion: $13

Buller Electricity: $9

NorthPower: $8

WEL Networks: $7

Vector: $6

The Power Company: $6

Counties Power: $2