THE PRESS WEDNESDAY, JANUARY 27, 1988. Putting a price on power

Press, 27 January 1988, Page 16

THE PRESS WEDNESDAY, JANUARY 27, 1988. Putting a price on power

Later this week Electricorp will tell supply authorities what changes it intends to make to the tariff structure under which the authorities buy bulk power for distribution to their customers. A lot of South Island attention will be focused on the fate of the 22.5 per cent differential in favour of the South Island that was introduced three years ago. The price advantage to the South Island, based on the costs of transporting electricity generated in the South Island to the North Island, might be heavily reduced or even disappear.

Manufacturers in Canterbury believe that they have a good case in support of increasing the differential. They argue that, if the cost of generating power in the north is compared with South Island hydro-electric generation, an even higher differential can be justified. Since Electricorp has served notice that it will not continue a rigid pricing policy for bulk electricity, but will negotiate contracts and prices with supply authorities separately, allowing factors such as demand and the cost of supply to come to bear, the cheaper cost of producing electricity in the South should stand to the advantage of South Island consumers.

This could prove something of a twoedged sword, however, if Electricorp could show that one of the main reasons for the cheaper unit cost of power production in the South Island is the ready and constant demand for that power in the North Island. Whether Electricorp will share its thoughts on this is a moot point; it will not be announcing movements in the bulk price of electricity as did its predecessor, the Electricity Division of the Ministry of Energy. When it comes to power pricing, consumers in the North and South alike will be at a loss to know just what is happening to the cost of producing electricity. The marketing general manager for

Electricorp, Mr Drew Stein, says that giving a general price for bulk electricity is ridiculous when prices vary between one area and another. The bulk rate that used to be announced was not just a benchmark for bulk power sales, however. For most consumers, whose power bills contain a lot of other costs additional to the bulk charge as well as various rebates or incentives peculiar to their own supply authorities, the movement in the bulk rate was an indicator of what they faced in the way of power price rises. It was also a measure of the efficiency of the Electricity Division, just as it could have become a measure of the efficiency of Electricorp. The announcement of an artificial and, in the circumstances, largely meaningless figure as a nominal bulk rate might hinder negotiations between Electricorp and its customers. The existence in the background of an announced figure, no matter how irrelevant it might be to a particular contract, would make Electricorp’s task harder when dealing with separate supply authorities with vastly dissimilar requirements that are properly met by different pricing structures. The apparent secrecy over power generation costs on Electricorp’s part is likely to prove an illusion. Supply authorities are having to present a new sense of commercialism and competition, too. Many already make clear in their accounts to consumers just what part of the total charge is the cost of power and what is a "service fee.” The supply authorities will find it in their interest to continue to show what is the cost to them of bulk power so the imagined “secret” soon will be out. Comparisons will be made quickly and consumers will have an indicator of Electricorp’s efficiency as a power generator and a measure of just how effective their supply authority is at the negotiating table.