22 June 2015

Smelter could recap $50m windfall.

The Southland Times

Possible changes to electricity transmission pricing could save Tiwai Point aluminium smelter about $50 million a year and also benefit southern residential power customers - moves the Southland Chamber of Commerce say better reflect where costs lie.

The Electricity Authority this week released its transmission pricing methodology options working paper for consultation. If the first option of new charges on existing and new grid investments proceeds, transmission costs for the Tiwai Point aluminium smelter would drop about $50m year. Under a second option, new charges would only apply to new investments, which would exclude the smelter.

The smelter is the single biggest power user in the country, so transmission costs are a significant bill. Earlier this year, New Zealand Aluminium Smelters (NZAS) said it was having ongoing discussions with Transpower over transmission prices.

NZAS chief executive Gretta Stephens said the options in the paper confirmed that “the smelter is paying more than $50m a year for transmission assets it receives no benefit from”.

A Pacific Aluminium spokes-woman said the smelter paid $64m in transmission costs in 2014. “Every year we are paying $25m more than we did in 2008 and that increase in our total annual cost is projected under the status quo to increase to $34m,” she said.

Southland Chamber of Commerce chief executive Sarah Hannan said as business people they applauded the underlying principle that people should pay for the infrastructure they get the benefit from. The data in the paper also made it clear that under the current transmission pricing regime that South Island consumers were paying about $25m a year more for transmission than they received benefit for, and that was not even counting NZAS, she said. “We look forward to working with the authority to achieve the right outcome for both business and residential consumers in New Zealand.” The chamber would be entering a submission supporting the first option, Hannan said.

In its working paper, the Electricity Authority says the four main problems with the existing transmission pricing methodology appear to be that it is not cost-reflective, is not adaptive, sends the wrong price signals, fails to support the discovery of efficient transmission investment and is not durable. Submissions on the proposals are open until August 11.