N.Z.’s electricity ‘costing too much’

Press, 8 March 1989, Page 4

N.Z.’s electricity ‘costing too much’

By

Nigel Malthus

Billions of dollars of excess generating capacity means that New Zealand is grossly overpaying for electricity, according to the Canterbury United Council economist, Mr Philip Donnelly.

Mr Donnelly has previously claimed that SouthPower paid at least twice as much as it should for bulk electricity, but he said yesterday that it was far worse than he thought. Initially he believed that South Island consumers subsidised those in the North Island, but now he believed that all consumers were grossly overpaying, and the south was merely the hardest done by. By his estimates, the old Christchurch M.E.D. paid about $3O million a year more than it should have, and the South Island as a whole paid about $125 million a year tod much. His comments came at a meeting of the South Island Local Bodies Association executive, when he outlined progress on a study he is doing for South Power on electricity pricing structures.

South Power is the electricity retailer newly formed out of the merger of the Christchurch M.E.D. and the Central Canterbury Electric Power Board. Mr Donnelly said that the present structure was not appropriate as it had developed under total domination by the Government, with policies more suited to a centrally planned economy rather than a market economy. It aimed for the “technical efficiency” of electricity available to all on demand. The result was an industry considerably larger than it needed to be, with “billions of dollars worth of excess capacity.” He likened it to an airline having extra aircraft available and ready to go, just in case one or two more people turned up than there were seats available.

Mr Donnelly said that 1987 statistics showed that New Zealand’s hydro stations worked at an average load factor of about 60 per cent — that is, at an average capacity of 60 per cent — when they could have been run at 80 to 85 per cent. Worse were the thermal generating plants, normally fired up at peak demand times. “By my observation, they make some of the ‘think big’ projects look like innocent little children,” said Mr Donnelly. Among the thermal stations, Marsden operated at a load factor of 44 per cent, New Plymouth at 27 per cent, Otahuhu at 1.5 per cent, and Whirinaki at 0.2 per cent. Thermal stations, however, comprised about 40 per cent of the total investment in generating plant. Mr Donnelly said that

the correct decision would have been to use South Island hydro generation rather than build thermal stations, send it north through a bigger Cook Strait cable, and charge North Islanders for the extra transport costs. One reason why electricity costs were too high in the South Island was that transmission costs were charged at an equal rate throughout the country. Thermal production costs, at more than 20c a unit, were grossly in excess of the price to retailers, at about 6c a unit, said Mr Donnelly. The capacity of the Cook Strait cable was being doubled, but Mr Donnelly wondered how the Electricity Corporation would then achieve the required 11 per cent return on investment from the “white elephant” thermal generating plants.