Power price hikes for Aucklanders likely to weigh on Tiwai Point aluminium smelter's operations

Consumers in the upper North Island would face the biggest increase in national electricity grid charges under the Electricity Authority's proposed changes to transmission pricing while the Rio Tinto-controlled aluminium smelter at Tiwai Point would get less than half the benefit it may have hoped for.

The authority released a consultation paper on transmission pricing that proposes replacing the current two main charges - $150 million a year for the HVDC link between the North and South islands and an interconnection charge of $639 million a year, with two new charges: an area-of-benefit (AoB) charge of $296 million and a residual charge for Transpower's costs of $500 million a year, spread across the country.

Because consumers in Auckland and the Far North have received the biggest benefits from upgrades of the national grid, ensuring the nation's biggest city has one of the most reliable power supplies, they would face the biggest increases under such a regime, the authority said.

A 'heat map' of increased charges for an average household show the upper West Coast and areas in Canterbury south of Christchurch would also face higher charges.

But the authority says the overall impact on electricity consumers would be "very modest", amounting to a 0.5 percent average increase, or $11 a year.

The current transmission pricing methodology (TPM) was flawed because it isn't service-based and doesn't reflect actual costs, authority chief executive Carl Hansen told a media briefing in Wellington. He likened the system to having a set airfare for a flight anywhere in New Zealand, no matter the distance, where even people who didn't fly were charged.

The authority is embarking on 10 weeks of consultation over the proposed changes, aiming to have final decisions by October. It would then develop a fully operational new methodology between 2017 and 2019, with the aim to have it in place for April 1, 2019.

The Tiwai Point smelter's operator has viewed the decision as an important factor in determining whether it can continue to run at full capacity, scale back production, or quit the New Zealand operation altogether.

Other major industrial users would face higher charges.