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Heart of the City submission: Electricity Authority Consultation Paper

Thursday 18 Aug 2016

26 July 2016

Electricity Authority
PO Box 10041
Wellington 6143





Heart of the City, Auckland’s city centre business association (‘Association’), welcomes the opportunity to make this submission to the Electricity Authority’s Consultation Paper – Transmission Pricing Methodology: Second Issues Paper.

Heart of the City members are property owners, business owners, occupants and tenants of commercially rated property that sits within our boundary in Auckland’s Central Business District (‘CBD’).  In 2015, there were more than 10,000 businesses within the city centre.

Auckland’s city centre is the largest business district in New Zealand and, according to Auckland Council’s 2012 Economic Development Strategy, its productivity over any other region in New Zealand adds between 117% and 156% more value.  It plays a pivotal role in Auckland and New Zealand’s present and future success, as the pre-eminent hub for office-based employment and business/financial services.


The Consultation Paper proposes changes to the way transmission charges for using the National Grid are shared amongst customers.  This Submission outlines our concerns about the potential impact of a proposed multi-million-dollar increase in electricity transmission prices in Auckland. 

Security of supply is paramount

We are very concerned with the potential for unintended consequences, particularly around security of electricity supply.

Auckland business owners and operators remember the five-week long 1998 Auckland power crisis that resulted from the failure of 40-year-old cables that were past their replacement date.  The Central Business District became almost deserted and some businesses estimated that the outage cost them at least $60,000 per week.  Then, after promises that this kind of infrastructure failure would not happen again, on June 12, 2006, a corroded shackle at Transpower's Otahuhu substation broke in high winds, sending an earth wire onto live cables and wiping out power to around 700,000 people at various times over the entire day, disrupting rail and traffic services, radio transmission, phone services and causing partial hospital closures.

These proposals appear to privilege more competition over reliable supply.  For our members, the majority of whom are small and medium sized businesses, reliability of supply is critical to their successful operation.

In our view it is better for the electricity industry to have incentives to build and maintain transmission infrastructure early rather than too late.  We do not want to see a move by the industry to a regime of “just in time electricity infrastructure investment” in the name of efficiency when a potential outcome of this approach is infrastructure failure, resulting in power outages, massive business disruption and acute costs to businesses.

Cost Impact on Business

The proposed changes would result in Auckland paying an additional $78 million each year in transmission grid charges, which would result in extra costs for business.  For example, medium sized businesses would face a $1,500 to $5,000 increase each year, with large electricity users paying up to $22,000 extra every year.

We do not believe it is appropriate for large, profitable electricity generators to benefit financially from the proposal, largely at the cost of Auckland and upper North Island customers.   It seems more appropriate for the transmission costs of the National Grid to be funded equally by all users, including the electricity generators.

Lack of Transition

Businesses have essentially had the same transmission pricing costs for a very long time and some have made significant investments in response to them.  The proposals do not appear to recognise the longevity of these past price signals or the investments already made by some businesses on the basis of these signals.

We do not see it as best practice to change the ‘goalposts’ and expect businesses to simply absorb these price changes.  For some large users of electricity, there may be capital flight and/or a significant increase in the cost of capital resulting from these proposals.

Overall Conclusions

Our Association does not support the Electricity Authority proposals detailed in the Transmission Pricing Methodology: Second Issues Paper, which would see a multi-million-dollar increase in electricity transmission prices for Auckland and potential risk to supply.


We ask that you please take account of the potential impact of these changes in your decision making.   If the Authority has any questions or would like any further information, please let me know.


Yours sincerely,

Viv Beck

Chief Executive

Heart of the City