Power bills could be on the rise

About two-thirds of the billions of dollars invested in upgrading the grid in recent years has benefited consumers in the upper North Island. Photo / NZME.

Auckland households could face an increase of 4.5 per cent in their power bills under changes the Electricity Authority is considering to the way the cost of the national grid is apportioned.

About two-thirds of the billions of dollars invested in upgrading the grid in recent years has benefited consumers in the upper North Island, reflecting the concentration of population growth there, but under current transmission pricing arrangements the cost is spread over the whole country.

Such cross-subsidies are inefficient, the authority argues, and increase the cost of electricity for the country as a whole.

It is still consulting on a set of options, the details of which are arcane (tinyurl.com/Electricityoptions).

But the authority's chairman, Brent Layton, likened the issue to a group of diners in a restaurant arguing about how to divide the bill. Some dishes were ordered for the whole table while individuals chose their own main course and one had his stomach stapled and could have only soup.

Meanwhile, the wine bill (analogous to the high-voltage direct-current interisland link) is presented only to the heaviest drinkers when others partook as well.

A more targeted approach to transmission pricing, which links costs to benefits more accurately, is desirable, the authority believes, and more workable than it may have been in the past.

A key decision when the authority arrives at its preferred option next year will be whether changes to the transmission pricing methodology should apply only to new investment or to charging for existing assets as well.

The former approach would lock in inefficiencies in the currentrules.

The Tiwai Pt aluminium smelter, whose future is uncertain and whose closure would leave a $1 billion hole in the country's export income, would save around $50 million a year under the proposed rules compared with the status quo.

Conversely a retrospective approach means transmission charges would rise in the areas served by Vector, Counties Power and Northpower by enough to increase residential power bills by around 4.5 per cent, the authority estimates.

The Far North and the West Coast could face increases of around 10 per cent.

So the authority says it is considering a range of transition measures to manage the effects of adverse price changes.

"This should mean that any adverse impacts of price changes for Auckland and Northland are not excessive," it says.

But any transitional arrangements which limited price increases for some consumers would also limit price decreases for others.

In any case, it argues, higher transmission charges, which typically make up about 11 per cent of a residential power bill, are partially offset by reduced energy costs and improved reliability of supply as a result of the grid upgrade investments which have occurred.

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