Shafted by Transpower’s restructured transmission charges since upheld by the Court of Appeal, Nova Energy’s remedy is to stop supplying power to the national grid from its co-generation plants unless given substantial transmission cost discounts for power used on-site by co-located business operations.
Transpower’s new charges were implemented in April 2023; designed in particular to re-allocate costs of the Cook Strait high voltage link previously charged to South Island generators. Most of the Cook Strait traffic is one way; power supplied from South Island hydro-electric generators delivered to North Island consumers.
It costs Transpower about $800 million annually to maintain a national grid.
Allocation of ‘residual costs’ has proved contentious. This covers costs of past transmission investments plus Transpower head office costs. Residual costs currently amount to some 56 per cent of annual costs.
New rules see future Transpower investment charged to those who benefit, a rule change already causing angst on the West Coast where there are relatively few customers facing upgrade costs at the end of a very long and fragile transmission supply line.
Nova Energy challenged changes to transmission charges which penalised its co-generation plants. For policy reasons, Transpower based residual cost charges on power usage. Co-generators produce electricity they consume. Power generated and consumed onsite never enters Transpower’s network.
To run a hydro-electric plant, a trivial amount of power is drawn from its generators before sending the balance down Transpower’s lines. With Nova’s Taranaki co-generation plants, a little under half is used by nearby dairy factory and gas treatment plants, with the balance going to the national grid. Power not sent to the grid is included in calculations for Nova’s ‘residual cost’ transmission charges.
Nova said this charging regime discriminated against co-generation plants and was irrational. Nova is potentially liable to residual charges of $1.5 million for its Taranaki operations, a nearly 800 per cent increase on previous years. This has knock-on consequences for those businesses using co-generated power, it said.
The Electricity Industry Act requires transmission charges to be set in a manner that promotes competition. Nova said the ‘residual charges’ methodology chosen was based on an ability to pay; an equitable concept, lacking any principles of economic efficiency.
Transpower said any rule adopted would see winners and losers. The rule chosen levies a charge on those least price-sensitive and did the least to distort investment decisions, it said.
While there is a case for treating co-generators differently in respect of residual costs, the Court of Appeal said, decisions setting the new transmission charge regime were not irrational.
Nova has the option to ‘island;’ disconnecting its Taranaki plant from the grid and consequently no longer liable for annual residual charges. Transpower has reserved the right to offer discounts.
The Court of Appeal was told Transpower has unilaterally applied a cap to Nova’s residual charges, currently giving Nova a $163,000 annual saving.
Nova Energy Ltd v. Electricity Authority – Court of Appeal (3.07.23)
23.108