Electricity prices now flexible

Press, 29 January 1988, Page 1

Electricity prices now flexible

By

PETER LUKE,

political reporter Electricorp yesterday unveiled a three-option price system for its customers, which is designed to offer greater flexibility and move away from the present bulk supply tariff system. The new system will begin on May 1, for a five-month trial period. Existing contracts with supply authorities, which expire on March 31, will be renewed until May 1. . The corporation said yesterday that the bulk supply tariff ignored variations in asset utilisation, regional costs, supply reliability and seasonal factors. The chairman of Electricorp, Mr John Fernyhough, said the new tariffs were an effort to match prices to the actual costs of generation and distribution. They would give customers a much wider range of options than the single bulk tariff. The price increases in retail areas would vary according to the option chosen, the response of the particular retailer, and the characteristics of the local market, he said. “The primary purpose of the pricing options being offered to retailers is to provide appropriate economic signals to help stimulate additional sales of electricity, minimise production costs, and avoid real increases in electricity prices.” . The complex new pricing system will be made up of four elements — a supply charge, a system service charge, a demand charge (two options), and an energy charge (three options). The fixed supply charge will be based on replacement, operating and maintenance costs of plant and equipment at each point of supply; and the rate of return required on Electricorp’s investment. The system service charge will be an annual charge to cover the costs of system security. This fixed charge would be based on each customer’s maximum demands, spread over all supply points, throughout the five winter months. The demand charge would meet the balance of generating and transmission costs remaining

after energy charges. This charge would either be based on a customer’s peak demand levels, averaged over certain days between June and August, or on coincidental demand. This latter system, initially aimed at large customers, would see the demand charge based consumers’ contribution to total system demand over a given period. Energy charges which are based on operating costs rather than capital costs, comprise three options. The first consists of three energy rates, corresponding to summer days, winter days, and all nights. I The second, called "time of use,” bases price differentials on production costs at different times of day, days of the week, and seasons. The third is made up of "time of use,” together with spot purchases, in which the risk is shared between customers and the corporation. Electricorp believed that those purchasing on-the-spot market could benefit from lower production costs in wet years. But spot purchasers would risk higher costs when it was necessary to use more thermal power. The first of the three over-all options available to consumers during the trial period is called the six-part option, with a supply charge, system demand charge, a demand charge based on maximum demand, and an energy charge based on the summer day, winter day, night option. Of the three options this is closest in concept to the existing bulk supply system. The “benchmark pricing option” consists of supply and system service charges, either demand charge option, and energy charges based on the “time of use.” The risk sharing option also involves supply and service, charges and either demand charges. But energy charges are based on time of use up to a selected level, then spot prices. Other electricity stories, page 4