Power - North about to pay more for less?

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How electricity is distributed around the Far North isn't going to change, but how much it costs might well do.
How electricity is distributed around the Far North isn't going to change, but how much it costs might well do.

Northpower believes the Electricity Authority's proposed area-of-benefit transmission charges could see Northlanders paying more for a service that has "effectively declined".

Expected price increases for the region were in the order of $15.5 million, largely due to the proposed beneficiaries-pay model favoured by the regulator, but according to Northpower, despite the $1.3 billion spent increasing transmission capacity into the north of the North Island in recent years, Northland often has periods where its security falls below the N-1 standard.

The North Auckland and Northland project installed another 220kV supply to North Auckland, providing diversity as far as the Huapai substation in West Auckland, it says, "leaving the security of supply unchanged for the remaining 70 per cent of the tower-line supplying Northland.

Thanks to Huapai's circuit-breaker configuration, when planned work or faults took one of the 220kV circuits from the south into Huapai out of service the corresponding circuit supplying Northland also had to be out-of-service, reducing the region's security of electricity supply for long periods, on occasion weeks at a time."

The EA received 507 submissions on its proposals to establish a more efficient method for allocating transmission system costs among users, its proposal including instituting a charge targeting regions that most benefit from transmission investment.

There would also be a residual charge on distributors and industrial customers to cover overheads and any extra grid asset costs.

In applying an area-of-benefit (AoB) charge, Northpower said the regulator should also look at what drove transmission investment.

"If cause is not applied to the assessment of benefit, we have no confidence that an AoB regime would deliver appropriate outcomes for future investments," the company said in its submission.

The region, including the Far North (Top Energy), had not contributed to any increases in the upper North Island's peak demand since 2008.

In fact peak demand in the region had probably declined, remaining virtually unchanged on Northpower's network and falling in Top Energy's.

That was partly due to the commissioning of local generation, including a 15MW expansion of the Ngawha geothermal plant in 2008 and the installation of a 9MW diesel-fired peaking plant at Bream Bay by Trustpower in 2011. Overall, the region's economy had also been "flat".

The submission noted that the proposal would increase the region's transmission charges by 76 per cent, with an additional $7.6m to be paid by Northpower consumers, $5.2m from Top Energy and $2.7m for Refining New Zealand.

"For a region that features in statistics for unemployment, poverty and GDP for all the wrong reasons, this would be a major blow to the region at a time when investment should be flowing into the region, not being siphoned out to reduce transmission costs in other regions," it added.

Accident of geography

Top Energy has echoed those concerns, saying the area-of-benefit proposal would add further costs simply "due to an accident of geography".

The network's interconnection charges had increased 126 per cent since 2005, without additional reliability gains. Area-of-benefit would add further costs due to its location north of Auckland, while most generation was south of the city.

As such, Northland would always be liable for cost increases whenever Auckland required additional capacity.

Top Energy, which already produces about 70 per cent of the Far North's electricity needs at Ngawha (and is in the process of finalising the consents for another 50MW of generation, which would make the district a nett exporter of power) has suggested that one solution could be to "de-couple" Northland from Auckland, while area-of-benefit charges, if instituted, should be based on an assessment of beneficiaries of the eligible investment assets rather than the current proposal, which used the capacity of transmission.

Counties Power has argued that the EA's proposals represent a "philosophical U-turn in national infrastructure cost allocation" that should be decided by the Ministry of Business, Innovation and Employment rather than the authority, while the implications of the pricing proposals needed to be considered across the whole economy.

Placing a higher cost burden on people and businesses located further from the core of infrastructure networks could equally apply to distribution pricing and telecommunications charges, and the impacts of that on export sectors such as dairy, agriculture, tourism and viticulture needed to be considered, it said.

More 'deranged thinking'

A former chairman of the Top Energy Consumer Trust has labelled the Electricity Authority's transmission charging proposal as "another case of deranged Wellington economic thinking" that will contribute to the creation of economic ghettos in the Far North.

In simple terms the idea is to set transmission charges on the basis of distance from the point of supply. A change in the way in which major electricity users are charged is also proposed.

"I am no longer privy to the internal discussions of the power companies, but as I read it the proposed changes will be disastrous for Far North businesses and consumers in general," Robin Shepherd said.

"Juken NZ must surely see this as having the potential for plant closure, and ditto for AFFCO. For all other major users, such as supermarkets, it will undoubtedly affect their cost-effectiveness, and for everyone else there will a flow-on effect in terms of almost all costs.

The cost increases will be exorbitant for domestic users, and our rather poor community will be punished.

"In terms of economic effect upon the Far North the proposed changes will be devastating.

"One possible effect could be that Top Energy finds itself facing enormous challenges in maintaining its services at prices the locals can afford. It might also be punished for its local generation at Ngawha."

The political ramifications (for National) would likely include Winston Peters strengthening his grip on the Northland electorate, Whangarei possibly following suit.

A further outcome could be consumers being driven to setting up independent solar systems, which would further destabilise the balance in power supply, remaining Top Energy customers having to pay more to keep the system running.

- Northland Age

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