City benefits from country cash cow

Nick Loughnan laments ''monopoly pricing'' and the sale of the Central Otago electricity lines network.

April 1 has long been a day to expect the unexpected, often in a light-hearted and good-natured way. Yet, April 1 has lately also taken on an added and more unsavoury flavour. It is the anniversary of price increases as seen on our monthly power accounts, and the movement is always upwards.

It usually turns our focus against ''power companies'' as they send us their bills, and they become the butt of our frustration as we either accept the higher monthly account, or switch energy suppliers to try for a better deal.

Fortunately, we have choice as to our energy supplier where there is some competition. While there can be confusion comparing different tariff rates and allowable discounts between their pricing plans, the cost of our units of electricity, in cents per kilowatt hours, is similar between the retailers.

However, there is another component in our monthly power bills, and not all energy retailers list this separately.

This is known as a lines charge, and is the cost our chosen energy company must pay to the monopoly owners of the power lines that bring the energy into our homes.

Pre 1997, power poles, substations and lines were owned by small municipal power authorities, often set up as trusts, with their board members elected by the communities they served.

This all changed with the Bradford reforms of 1997 when these power boards were legislated into extinction. Some entities kept their lines networks, others their generation assets, but they were not allowed to keep both. And so began the era of the ''Lines Networks''.

In that same year, Central Electric (the power board serving wider Central Otago) decided to keep its generation assets, and sold its lines reluctantly.

Dunedin City Council bought them and very soon, a new raft of charges began to appear on consumers' accounts. Where there had only been a monthly uniform ''supply charge'' of 50c per day, we began to see these new network charges growing hugely.

The writer compared his household power account from 1997 with the latest arrival to see what has happened since those ''reforms''. The difference is astounding. The actual energy component has risen from 9c to 14c per kWh, (a modest 55% increase over 15 years).

The monthly lines charges have risen from $15 to $192, (a 1180% increase). And a further winter lines charge increase of 53% begins on May 1. So the pattern continues.

And where do these lines charges go to? Aurora/Delta is the DCC-owned lines company that operates the Dunedin and Central Otago lines network, while Transpower operates the ''national grid'' delivering power from the large hydro dams through the pylon lines to grid exit points. Unfortunately, both are monopolies and act accordingly.

Transpower announced a ''bumper'' profit of $269 million last year, an increase of 60% from its 2012 result, with a healthy dividend going straight to the Government.

Aurora/Delta meanwhile had a very forgettable year. In spite of the benefits of its golden revenue streams from lines charges, some serious governance and operational inadequacies came home to roost.

It appears Delta's guaranteed monopoly revenues have softened any competitive edge it might once have had.

Its outlying civil engineering base in Christchurch could not gain any profitable contracts, despite the amount of work required repairing the earthquake-shattered infrastructure of that city.

In Otago and Southland, it was forced to also shut down other civil construction and maintenance operations. It lost the tender it had, to operate and maintain the Central Otago district's water contract, to Fulton Hogan, which won out with ''enhanced asset management and strong customer focus''.

It also lost some major Dunedin city contracts. And it was hauled through an Auditor-general's investigation over some controversial and speculative land development deals in Queenstown and Luggate.

Certainly not good times for those displaced with job losses. So Delta appears to have refocused to electrical contracting work in a way which seems designed to strengthen its monopolist modus operandi.

Just a few days before Christmas 2013, it announced it was no longer allowing competing independent contractors to undertake work around the installation of new irrigation works requiring connection to its network.

The announcement of this was viewed locally as a poor ploy in the lead-up to the Christmas holidays. And the removal of a choice of contractor is seen by the many farmers who are installing spray irrigation as seriously anti-competitive.

This issue is bound to be challenged, considering the scope of irrigation expansion in the area.

Meanwhile, all Central Otago consumers of this essential utility have no options other than to pay the ever-increasing lines charges and watch on as Dunedin's debt-ridden city council gratefully expects the ongoing Delta dividends.

Dunedin's ratepayers must love Central Otago now for more than just its scenery. And as for selling off our lines network, perhaps we really are the April fools.

 

 - Nick Loughnan is from Galloway, near Alexandra.

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