Stoush brewing over radical electricity transmission scheme

By Pattrick Smellie

Jan 24 (BusinessDesk) - Major electricity users and most electricity companies are gearing up to challenge a radical new Electricity Plan changing the way they pay for access to the national grid.

Papers published on the EA's website show a combination of confusion and opposition to the proposals, which the industry regulator unveiled in October, cutting through more than a decade of unresolved debate about the fairest way to carve up the cost of transmitting electricity around the country.

The transmission grid is managed by the state-owned monopoly Transpower.

In particular, South Island generators Meridian and Contact Energy - more recently joined by Genesis since it was made owner of the Tekapo hydro scheme under reforms in 2009 - have objected to earlier arrangements which meant South Island generators bore the full cost of the Cook Strait cable link.

Now, however, state-owned Meridian appears to be the only electricity generator not actively contesting the EA's proposals, which the authority says will share the costs of national electricity transmission at a lower overall cost than under the current regime.

The issue is acute because heavy investment to upgrade the grid means the transmission component of electricity bills is forecast to rise by 79 percent over the next decade. Transmission currently makes up around 7 percent of the average household power bill, but will rise to around 10 percent over the next 10 years.

"The overall effect on households' electricity bills will be a minor reduction in electricity costs relative to what they would otherwise have been," the authority said when it released its proposals.

Economic benefits over 30 years were calculated at $173.2 million, against $49.3 million from the proposals favoured by a slender majority by aTransmission Pricing Advisory Group, which the EA largely rejected, the EA suggested.

However, alarm at the implications of the proposed new approach has already seen the EA set back the consultation deadline twice, by four months, to March 1, with some players saying even that is too short a timeframe.

"All participants and end customers have been struggling to understand this important new feature," the executive director of the Major Electricity Users Group, Ralph Matthes, said in a letter to the authority's chairman, Brent Layton, dated Nov 5.

A string of similarly worried submissions came from other large players, including TrustPower, MightyRiverPower, and the Consumers Institute, while Auckland network company Vector accused the EA of "inadequate process and information."

Vector claims the EA has failed to set out alternatives to prove its scheme is the best option, or what its impacts on prices to consumers will be, "including wealth transfers between suppliers and consumers."

"The Authority is in danger of concluding that the proposal is to the long term benefit of consumers even if consumers are made worse off," a Nov 13 letter from Vector chief executive Simon Mackenzie to Layton said. "We are very concerned that the current process falls short of any reasonable definition of good regulatory practice."

Matthes said MEUG members were viewing "with dismay" the impacts of the proposed changes, and suggested the EA had not understood them when they were first proposed.

TrustPower said their impact could be "tens of millions of dollars" annually and that the company had taken the unusual step of engaging international advisers on the complex plan.

MightyRiverPower, which is preparing for possible partial privatisation and will need to disclose material risks in a prospectus, warned the proposal "in its entirety … has very material implications for all generators and retailers."

That included MRP, "the one in five New Zealanders who are our customers, our geothermal joint venture partners, and New Zealand electricity consumers and participants in aggregate."

"The proposals also have the potential in our view to have adverse impacts on the wider economy," said chief executive Doug Heffernan in a Nov 9 letter to the EA.

(BusinessDesk)

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