King Country Energy, the central North Island power generator and retailer, has warned the Electricity Authority's planned overhaul of grid charges would both increase prices for its customers and leave it with little incentive to invest.

On May 17, the Authority published a consultation paper on transmission pricing to replace the current two main charges - $150 million a year for the HVDC link between the North and South islands and an interconnection charge of $639 million a year, with two new charges: an area-of-benefit (AoB) charge of $296 million and a residual charge for Transpower's costs of $500 million a year, spread across the country.

Consumers in Auckland and the Far North of the North Island would face the biggest increase in costs under the proposals because they have received the most benefit from recent upgrades to the electricity grid. A final decision on the proposals is due in October, with the aim to have the new regime in place by 2019.

King Country Energy has around 18,000 customers in the Waikato, around 75 percent of the market for the area. It owns and operates a 45 Megawatt hydro system incorporating four power stations in the King Country and another power station in the Manawatu.


Chief executive Rob Foster said his company had contributed to the consultation process but the outcome "blatantly ignores KCE's concerns" and would ultimately lead to its customers paying more.

A particular issue is the proposed abolition of the avoided cost of transmission payment (ACOT), which delivers around $158 per customer to King Country Energy.

The payment is made to generators who supply homes and businesses through local lines which are not directly connected to Transpower's network, avoiding the cost of transmitting on the main grid.

Foster said the removal of this payment would have a major impact.

"Potential removal of the ACOT also means a number of upgrades King Country Energy is investigating - each of which has potential to positively affect peak demand and security of supply - are now at risk," he said.

Foster added that the overhaul of its Wairere Power Station where $2.73 million was spent to remove three old turbines and replace it with a single new turbine in 2014 would have been unviable under a regulatory regime that had removed the ACOT payment.

He believes the overhaul will diminish distributed generators like his.

"If this proposal goes through, distributed generators will be dependent on Transpower's perspective of their worth, and quite simply, that means the Electricity Authority has handed responsibility for the status of distributed generation to the grid operator," he said.