Vector slams discount proposal
Auckland lines company Vector has blasted an Electricity Authority proposal which it said was clearly designed to allow the Tiwai Point aluminium smelter to get a discount on its electricity transmission costs.
It raised the coronavirus as a reason why a discount might not be fair to other power users who would then need to carry more of the burden of paying for Transpower’s national grid.
But Vector’s regulatory boss Richard Sharp said that if discounts of the kind contemplated by the Electricity Authority were on offer, Vector might want one too.
It might be cheaper in theory for it to also cut Transpower out of the loop when connecting its Auckland lines network to power stations, spokeswoman Elissa Downey said.
The aluminium smelter’s majority owner, mining giant Rio Tinto, announced in October that it would decide by the end of this month whether to partially or completely close the smelter in response to ‘‘market conditions’’ and what it said were high energy costs.
The Electricity Authority has since proposed a rule change that could slice tens of millions of dollars off the smelter’s $64m annual payment to Transpower, by allowing it to cap its transmission charges at the theoretical price it might need to pay to connect the smelter using its own dedicated power lines.
It is understood Rio Tinto has argued the annual bill should be just $28m a year, but Transpower has said any calculations would be complicated.
Sharp said in a submission filed by Vector that it was not clear why the authority should be concerned about the possibility of the smelter ‘‘exiting the market’’. Its job was to promote the long-term benefit of all consumers, ‘‘not to favour any individual customer’’, he said.
He told the authority that Vector strongly disagreed with the proposal to allow power users to apply for a discount based on ‘‘a purely hypothetical business case for grid bypass’’.
‘‘This amendment is clearly designed to make it easier for New Zealand Aluminium Smelter to apply for a prudent discount based on the estimated costs of building a proprietary transmission line from Tiwai Point to Manapouri – when in fact such a project could not be undertaken, because it almost certainly would not obtain the required resource consent,’’ he said.
The smelter already benefited from paying the lowest wholesale electricity prices in the country and had received tens of millions of dollars in government subsidies in the past ‘‘all funded ultimately by New Zealand electricity consumers and taxpayers’’, he said.
‘‘Providing further assistance via an adjustment to the prudent discount arrangements would be in direct opposition to the authority’s statutory objective.’’
A prudent discount for the smelter would mean power price increases for smaller customers, many of whom were ‘‘struggling with energy poverty’’, and other large businesses some of which might now be under ‘‘extreme financial duress on account of the coronavirus outbreak’’, Sharp said in the submission.
NZ Steel, Refining New Zealand and Norske Skog were ‘‘arguably just as significant to their local economies as the smelter is to Southland’’, he said. ‘‘Yet, it is unclear whether they would be able to avail themselves of the proposed prudent discount amendment. Perversely then, these customers would see their prices go up as a result of the very reform that is intended to prevent inefficient exit.’’
Although strongly opposed to the prudent discount rule change, Vector said it had begun investigating its own bypass options in case the proposal was implemented.
‘‘Our view is there will be options that would meet the test of falling below standalone cost and hence would be eligible for a prudent discount under the revised criteria.’’
Contact Energy – which like other large energy retailers stands to lose out if the smelter closes and releases excess electricity supply on to the market – supported the authority’s proposal.
Submissions on the prudentdiscount rule change only closed on Tuesday. But the Ministry of Business, Innovation and Employment (MBIE) invited representatives from the smelter, Rio Tinto, Transpower, the Electricity Authority and Transpower to attend a meeting the previous week.
Transpower has said the proposed prudent discount policy ‘‘and a range of other potential initiatives that would reduce the smelter’s overall energy cost’’ were discussed.