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Proposed TPM changes to benefit consumers

The Electricity Authority today released a proposal to reform the transmission pricing methodology (TPM) that determines how Transpower sets charges to recover the costs of operating the national electricity transmission grid.

The Authority’s Chief Executive James Stevenson-Wallace says the proposed changes would significantly benefit electricity consumers – and solve some big issues with the current TPM.

“We estimate a net benefit of about $2.7 billion over the next 30 years from our proposal through lower transmission and generation costs.

“Current charges spread the costs of regional transmission investments across all NZ consumers. This means some are paying more, while others are paying less, than the benefit they get from the transmission grid.

“Our proposal rebalances transmission charges so that those who benefit pay. It does not increase charges overall.

The Authority is proposing two new charges – a benefit-based charge to recover the costs of new grid investments, and the depreciated costs of seven major existing investments; and a residual charge to recover any remaining transmission costs.

“Some recent investments have been included to make sure consumers do not end up paying both for new investments and for recent major investments in other regions they didn’t benefit from.

“Under the Authority’s proposal, wholesale market prices would work alongside the TPM to manage peaks, rather than the current peak charge.

“The current peak charge sends the wrong price signals. Some consumers end up paying a premium when power is most valuable to them - even when there is plenty of transmission capacity available.

“What we’re proposing is a more targeted and accurate way to signal grid congestion – with significant benefits for consumers. We estimate that peak prices would be on average 38% lower over 30 years than they are now.

Mr Stevenson-Wallace says the proposal will also support NZ’s transition to a low-emission economy.

“Under the current TPM, customers are investing in alternatives (such as batteries) to avoid paying the peak charge, which wastes resources and shifts the cost of operating and maintaining the grid to others.”

“This avoidance is likely to increase if the TPM is not amended, as more grid investments are made to support the shift to a low emissions economy – and batteries and distributed generation become more affordable.

”The proposal also solves another long-standing issue. Under the current TPM, only South Island generators pay for the high voltage direct current link (HVDC) between the North and South islands. This is essentially a tax on South Island generation, and a disincentive to invest in an area full of potential renewable energy opportunities.”

The Authority’s proposal includes a price cap for consumers and businesses connected directly to the grid to protect them from big price increases.

“Rebalancing charges means that some consumers will initially have to pay a bit more while others will pay a bit less. In the regions where transmission charges rise, the initial average increase is about $21 for the average annual electricity bill. This is less than fifty cents more each week – and consumers will be a lot better off in the future”, says Mr Stevenson-Wallace.

“TPM reform is urgently needed and it’s time to agree on a new approach. If we don’t do something now, consumers will get less benefit from the electricity system, and pay more for it, in the long-run.

“There has been consistent and long term pressure for TPM reform since 2009. We’ve worked with the industry over the past 10 years to review the TPM, consulted widely and considered a wide range of options.

“Transmission pricing is complex and there is no single option that will deliver a consensus, but we believe what we’re proposing will deliver significant benefits – and solve some significant issues – with the current TPM.

“We will be consulting widely on the proposal over the next 10 weeks. We’re open to ideas about how we could improve our proposal – and any new ideas will be thoroughly considered.

The proposal and draft guidelines are published on the Authority’s website and available for consultation until 1 October 2019.”

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