THE PRESS TUESDAY, OCTOBER 2, 1979. Paying for power concessions

Press, 2 October 1979, Page 18

THE PRESS TUESDAY, OCTOBER 2, 1979. Paying for power concessions

Having announced a plan to offer a preferential price for electricity to South Island industries the Government must work out the details of a scheme by which the offer can be effected. Either as part of a regional development policy, or as compensation for the advantages of having natural gas supplies in the North Island, the concessions have been urged on the Government for a long time. If the concessions are to have a worth-while effect on the finances of southern industry they will have to be substantial. Except in a few businesses the expenditure on electricity does not figure so large, even at the latest, increased rates, as to determine the location of a factory or to be a critical cost of production.

A price adjustment may, however be a fair way to balance the costs of alternative fuels when industries are capable of using alternatives. Certainly it can be argued that the South Island has electricity to burn, so it might as well burn it. Such an argument has its dangers: and one is that, when a differential price has been established for the South Island, future governments and energy planners may expect the South to bear the capita) cost of further hydro-electric development.

Eor the country as a whole, however. some restraint on the South Island demand for natural gas from Maui in the form of liquefied petroleum gas at a national price will be welcomed by North Island users. Obviously L.P.G. is not going to be a ready substitute for electricity in most industries: but the North is not going to be enthusiastic about subsidising the supply to southern ports if hydro-electric resources are patently underemployed as a result.

The immediate task for the Government is to work out how to apply the electricity concession to southern industry. Unless the concessions are arranged with the power supply authorities by amending the bulk charge for power, the plan will have to depend upon direct subsidies to the industrial users This would be administratively complicated, but it would enable the Government to classify industries, perhaps favouring export industries or major power users, and anplv the concessions where it will produce the best results for the countrv as a whole.

The money for the concessions can come from hut two sources: tax revenue or electricity revenue. The preferable source must be electricity revenue and. if this source of the subsidy is to make sense it will not be at the expense of all domestic electricity consumers. South Island households are not going to welcome higher electricity charges to subsidise South Island factories any

more than they would be likely to welcome a tax increase to subsidise manufacturers’ electricity bills. The Government may have some difficulty in persuading North Island consumers and supply authorities that they must carry the extra charge: but that is what advocates of the South Island preference must expect. It is a fairly tai] order.

Some room may be found to finance the concession by adjusting the payment of the capital cost of South Island hydro development. The greater part of capital costs is being met from the Electricity Division's cash receipts. At a time when huge amounts of capital are required for development of the gas industries and alternative liquid fuels it is barely conceivable that loans for past electricity development should be refinanced, or that a higher proportion of new schemes should be paid for, from new loans.

The way may therefore be opened to relating electricity charges in the South Island directly to South Island capital works. This would be a major departure from the practice over many decades. When the sums are done the change might even be an embarrassment to the South Island, which on its own could hardly have embarked on very large hydro schemes without the prospect of having at least some electricity transferred to the North. The division’s costing had better be known before South Islanders become too enthusiastic about such a change.

The Government has warned that it will not embark on its concessions plan unless the profits from power supply authorities are moderated or reserved for power supply purposes. The warning is a reasonable one: neither the taxpayers generally, nor North Island electricity consumers, will favour a subsidy for southern industry if electricity profits are being used for other local government purposes. For the Christchurch City Council, in particular, the warning is a sore point, for it can be argued with some justice that electricity profits are in part a way of having much of the greater urban area contribute to projects that serve the whole area. The council will almost certainly have to yield on this point and make other arrangements. The Government, however, should not imagine that, if the entire profit were avoided, the effect on power bills would be very significant Spread among all consumers the difference this would make to electricity bills would be of minor consequence. Spread among industrial users it would be of greater consequence, but hardly sufficient to alter the prosperity of any Christchurch business.