Vector comes out swinging at latest grid pricing proposals

Tying these proposals to uncertain price resets by the Commerce Commission is a huge risk says Simon Mackenzie
Vector chief executive Simon Mackenzie

Auckland's electricity network owner Vector has come out swinging at the Electricity Authority's latest proposals to shift the cost of the national grid to those areas benefiting most from investment in upgrades, saying the revamped proposals released this week change nothing of substance while introducing "huge risk" to the process.

The EA this week released proposals that would preserve its hotly contested desire to shift the so-called Transmission Pricing Methodology (TPM) to those that benefit from them by having the reforms coincide in 2020 with Commerce Commission decisions on the weighted average cost of capital that network companies like Vector can earn on their monopoly assets.

Included in the rejigged proposals, which were subject to furious lobbying by the Auckland Employers and Manufacturers Association and major industrial consumers in the upper North Island, is a mechanism to prevent any consumer experiencing more than a 3.5% annual increase in network charges.

However, Vector chief executive Simon Mackenzie says that "nothing has changed" in the latest proposals, which "will mean a 33%  per annum increase in Auckland's transmission grid charges".

"It's hard to reconcile how the EA can continue to support a system where large generators, who benefit significantly from the grid, only pay less than 10% of the costs. It basically leaves everyday users across the country bearing an even heavier burden while the generators make windfall gains," Mr Mackenzie says.

"The EA talking about a 3.5% cap on electricity bills actually masks the fact there will be a substantial increase in the transmission cost component. We would have expected more transparency on the real impact of these changes."

He also criticised the EA's decision to mix its proposed regime with Commerce Commission WACC decisions which have yet to be made and are "outside its (the EA's) jurisdiction".

"Tying these proposals to uncertain price resets by the Commerce Commission is a huge risk, not to mention the comments are highly market sensitive.

"We're standing with a dozen other entities across the country who struggle to see how this will result in better outcomes for New Zealanders," Mr Mackenzie says. "I assume electricity retailers will be equally concerned for their customers and look forward seeing them also taking a strong stand."

The proposals will raise power prices for several major industrial plants in the North Island after 2020, including New Zealand Steel, which continues to review the viability of its New Zealand operations, including the Glenbrook steel mill south of Auckland, while lowering grid charges for the Tiwai Point aluminium smelter, which is also on a commercial knife-edge and has made clear its deep opposition to higher grid charges.

Some $2 billion of national grid upgrades this decade have largely benefited the upper North Island while improving the capacity of South Island generators to shift electricity across Cook Strait to northern consumers.

In a statement supporting Mr Mackenzie's views, William Cairns, the chair of Entrust, which holds a majority stake in Vector on behalf of Auckland electricity consumers, said: "We believe it is fairer to spread transmission costs equally across all users of the grid, including electricity generators."


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