South’s $21M ‘subsidy’ of N.I.

Press, 20 July 1977, Page 1

South’s $21M ‘subsidy’ of N.I.

PA Dunedin The South Island is subsidising North Island power users by S2IM a year — or $5O for each South Island household — according to Professor T. K. Cowan, the head of the department of accounting and finance at the University of Otago. Professor Cowan told a meeting of the Otago Chamber of Commerce last evening that the present common tariff for bulk electricity should be replaced by separate tariffs for the North and South Islands. North Island consumers were getting the benefit of the low-cost South Island power, plus the South Island consumer’s share of the reticulation costs, and losses involved in sending the power north, he said. “To submerge the cheap electricity produced from the South Island stations in the total national costs, on which bulk supply charges are based, is equivalent to transferring a huge subsidy to North Island consumers.

“Right now the subsidy is probably about 50c a unit, equivalent to about a SISM annual subsidy by South Island to North. Island electricity users.

"As the South Island develops further hydro stations and the North

Island more thermal stations, and as the operating costs of thermal stations rise, this annual subsidy will become much greater,” Professor Cowan said.

The escalating operating costs of existing and additional thermal stations in the North Island over the last three years, had made the case for a separate South Island electricity tariff undeniable, he said. Professor Cowan recommended that all responsible groups in the Otago region should oppose the application for water rights for the proposed DG3 dam in the Clutha valley until there was a “firm undertaking” that separate bulk electricity tariffs should be established for South Island electricity consumers. “For a regional authority to agree to the granting of these water rights, would be equivalent to giving approval to a continuing and compounding inequity. “These are strong words, but in my judgment they are justified by the facts. An intolerable situation has been allowed to develop in regard to the prices charged for elec,tricity to South Island supply authorities, and from there to South Island consumers. “The Government’s development policy requires a change from the presentsituation of a common

tariff for bulk electricity to all the supply authorities of New Zealand.

The Maui natural gas field added a new energy resource to the reticulated areas of the North Island, and it was used to the advantage of industrial, commercial and domestic consumers of energy in that area.

Maui gas had not come to tlie South Island, and the cost of liquid petroleum gas to the South Island consumer would include rising freight charges. “The general principle seems to be sound enough — that the consumer should pay a price that is related to the costs of supply, but it is not being applied to electricity, and this is unacceptably inconsistent."

Professor Cowan forecast an increasing gap between the cost of producing power in hydro stations in the South Island and by other means in the North Island.

“A study of electricity tariff setting in New Zealand suggests strongly that political factors have been more important than economic factors in determining electricity tariffs.

“The result has been economic waste. The same political situation continues, with a preponderance of voting strength in the North Island.”

Professor Cowan said that the South Island needed the cheap power more than the North Island. Domestic electricity consumers in Dunedin averaged 9718 units of electricity in 1974-75, compared with 6652 units in Auckland. “Each South Island domestic consumer could well have contributed about $5O of his electricity bills of that year to subsidise the powder bills of householders in the North Island.” South Island industries were also undoubtedly subsidising industrial users in the North Island. “To consent meekly to the granting of the water

rights for the Clutha dam is equivalent to agreeing to a continuation of little short of regional robbery through the uniform bulk electricity tariff.

“One might call it the great white gold robbery, but that would be rather emotive,” Professor Cowan said.

“In this quest for South Island electricity tariffs, our Canterbury opponents of the container crane issue must surely be our allies,” Professor Cowan said. The chamber decided to call a meeting with other local authorities to gather submissions for objections to the water right application, which close on August 6.