Electricity proposals disappoint

Debate is continuing on the future of electricity transmission costs. Photo: ODT.
Debate is continuing on the future of electricity transmission costs. Photo: ODT.
The Otago-Southland Employers Association is continuing its campaign against proposed changes to electricity transmission costs which it says will disadvantage the South Island.

The Electricity Authority in December released a supplementary consultation paper to its second issues paper.

Association chief executive Virginia Nicholls said the proposed refinements were disappointing and had reduced the previous benefits proposed to southern consumers and industries who were located close to major hydro-electric generation in the South.

The authority proposal capped the flow-on impact to households and businesses to more more than 3.5% of their totally electricity bill.

"This is essentially a new subsidy by the south for the north."

The first phase of the changes to the transmission pricing was proposed to take effect on April 2, 2020. The proposed changes were expected to reduce transmission changes for 12 of the 29 electricity network areas across New Zealand.

Mrs Nicholls said overall, the purpose of the transmission pricing work by the Electricity Authority was to correct an inequality in the current way transmission was charged and to shift the method to a better, fairer, more durable footing.

"Unfortunately, these principles have been diluted over the seven years this process has been under way, culminating with the latest supplementary paper. The latest ‘fix’ is not about economics — it is all about politics."

If the proposal continued to be diluted, no large energy intensive industries from within New Zealand, or international companies considering investing in New Zealand, would be attracted to build energy intensive industries close to the South Island’s renewable hydro generation, she said.

Every year reform was delayed, major industrial users and consumers in the regions that had not needed major grid investment were paying tens of millions of dollars towards infrastructure they did not use. That was unsustainable.

Since 2004, the pendulum had moved, Mrs Nicholls said.

About $1.3billion had been invested in the grid in the upper North Island but only 39% of that was being paid for by the upper North.

Transmission costs had increased by 61% in the lower North Island and South Island to cover the costs.

The status quo was not a fair system of allocating costs. Some parts of New Zealand were enjoying the benefits of an upgraded transmission grid at the expense of other parts. Most of the South Island and the central and lower North Island were paying for grid upgrades in Auckland, facilitating their access to lower overall electricity prices underpinned by South Island hydro generation, she said.

"We need change as soon as possible to address the current imbalance. People and regions should pay for the service they receive and what they use."

No-one wanted to pay more but subsidising particular regions and their industries dampened, not sharpened, their competitiveness.

The South Island had a regional advantage of having major hydro generation but the advantage was eroded by averaging transmission costs across the entire country. In the Southland Island, consumers paid the same rate for electricity transmission as people more than 1000km away.

The Otago-Southland region was the ideal place to locate energy-intensive industry because it had abundant renewable electricity generation. It had a stable workforce and could welcome more people, but with the current transmission cost system, no-one would set up new energy intensive industry here, Mrs Nicholls said.

The current system had been played by some businesses so they paid very little or nothing for transmission. The Otago-Southland Employers Association believed in a system where people and businesses paid for what they used.

New Zealand needed a transmission pricing methodology that was cost-reflective and matched those who benefited with those who paid.

"We need to look for the best long-term outcome for the whole of New Zealand. Auckland can thrive and so can the regions. A user-pays system delivers this. We should not overcharge consumers, residential or industrial, for infrastructure they do not use," she said.


At a glance

• Electricity transmission charge proposals still unfair to South Island

• South Island paying disproportional amount of transmission charges

• North Island costs underpinned by South Island hydro

User pays is the fairest system


Cut the cable and hopefully the pig island will float away.