Power users on the Top Energy network are in for modest savings after the lines' company has been allowed to run diesel and bio diesel generators without splitting that side of its business into a separate entity.
The Electricity Authority (EA) has allowed an exemption, with conditions, for 365 days, for Top Energy not to split the generation side of its business into a separate company that would result in cost savings.
Under electricity regulations, any lines company that generates more than 50MW of power has to adhere to separation and arm's length compliance requirements or run the generation aspect of the business separately.
In 2017, the EA granted Top Energy a 10-year exemption to run its power generation from the existing geothermal plant at Ngāwhā and distribution businesses as one entity which was renewed last year for a further 30 years.
The company at the end of 2019 applied for another exemption to run diesel and bio diesel generators to maintain supply during outages which Top Energy said was a standard practice by network companies as it was more effective and economically efficient than constructing more lines.
About 10 outages of eight hours per shutdown is anticipated each year.
Some of the diesel generators would also be run when electricity prices are high, to offset the costs of the generators, thereby reducing costs for power users.
Top Energy has about 32,000 customers.
Running the diesel generators without an exemption will cost each power user on Top Energy network about $80 a year.
Top Energy has a 3.65MW diesel generator in Taipā and is proceeding to either install or has installed 14.22 MW of additional generation at various locations.
These include 8.16MW on Bonnetts Rd in Kaitaia, 3.06KW at its Kaitaia depot, 2KW at Omanaia, and 1KW at Pukenui.
The company has spent $20 million buying and installing diesel generators while awaiting for word from the EA on its exemption application.
Pioneer, Contact, and Mercury made submissions on Top Energy's exemption application to the EA and voiced concern the lines' company was repeatedly investing in assets before obtaining the regulatory licence.
The three companies cautioned against allowing one entity to exceed the 50MW threshold and using assets to influence prices in the Far North.
But the EA considered the competitive impact on the national wholesale market to be negligible.
"If part of the network becomes islanded, the price charged to retailers will depend on the prevailing price at the nearest grid exit point, and there will be little scope for Top Energy as the local generator to distort this price," the EA said.
"The authority regards the diesel generation's impact on Ngawha Generation Limited as being of negligible importance for competition."
In its application, Top Energy said the costs of fuel to run the diesel and bio diesel generation would likely be about $300 an hour, excluding paying for fixed maintenance.
"Although the electricity generated will be sold into the national wholesale market, the likely amount which will be received under normal circumstances will represent one third of that cost.
"As a result, the likely payment for generation produced by the diesel/bio diesel generators will not incentivise the running of the generation except at times of peak pricing in the market."
Contact refuted Top Energy's claim that no company would provide network support services in the Far North district, saying it demonstrated an interest in 2017.
"The authority considers that participants should have an equal opportunity to compete for business and a distributor's local monopoly over lines should not be used to competitively disadvantage other providers of services."
Top Energy must invite an expression of interest within the exemption period of 365 days and if any interest is registered, it should be tendered for network support.
"If Top Energy's tendering process indicated that other alternatives were superior, the authority may instead revoke the exemption."
At the end of the exemption period, the authority may consider revoking, varying or extending the exemption with or without seeking additional public feedback.
The EA said the Top Energy board must consider all proposals and report their deliberations to the authority before applying for an extension to the exemption or any new application of a similar nature.
Top Energy's distribution network is located in economically disadvantaged areas, with low household incomes relative to the national average.
The customer density is 7.7 per kilometre of line compared to the national average of 12.2 customers per km of line.
Many consumers of the company's network live in energy poverty but pay some of the highest power charges in New Zealand.