Proposed electricity charges could be dire for NZ Steel

Proposed electricity charges could be dire for NZ Steel

New Zealand's largest steel manufacturing operation could be forced to close due to proposed changes to the way power costs are determined.

The Electricity Authority is proposing to introduce a location-based pricing scheme, dropping prices in Southland and Otago but raising them in the upper North Island.

Regions that have had grid upgrades would pay more, while those needing more investment would need to pay less.

NZ Steel's general manager John Nowlan says because of that, the company could face an extra $12.1 million in costs annually.

NZ Steel owns the Glenbrook steel mill near Auckland, which produces a large amount of the country's steel requirements and employs more than 1000 people.

"The Electricity Authority's TPM [Transmission Pricing Methodology] guidelines would increase transmission prices to NZ Steel by up to 300 percent with no additional value or benefit, no ability to recover costs, and no options to mitigate usage," says Mr Nowlan.

"NZ Steel is facing a number of regulatory, policy and system changes that could make the steel-making part of our business untenable."

In 2015, NZ Steel's Australian parent company Bluescope warned that its New Zealand business could face up to 1000 job losses and the mothballing of its Glenbrook mill if it didn't cut tens of millions of dollars in costs. 

Bluescope also halved the value of its Kiwi assets earlier this year.

It said the write-downs followed a "review of external steel and iron ore price forecasts and discount rates in light of macro-economic and global steel market changes".

For the 2015 financial year, the company lost AU$30.3 million from an AU$73.6 million profit the previous year, in its New Zealand operations.

A group of businesses and government groups have now asked for a judicial review into the Electricity Authority's proposal.

Employers and Manufacturers Association chief executive Kim Campbell says the scheme is being rushed through under the radar.

"To suddenly decide 'we're actually going to change that without actually having a transitional arrangement or letting people know it's going to happen' is actually outrageous. It's a national scandal."

He says the proposed pricing plan will determine prices based on location, rather than use.

"A medium-sized business in Auckland will be paying between $3000 and $7000 a year more for their power. Households could be up to $200 more. [For] bigger users, it could be in the millions. The further north you go, the more difficult it gets." 

Mr Campbell says if it goes ahead, there will be increases in power bills and subsequent job losses.

The changes are opposed by Ashburton District Council, Auckland Chamber of Commerce, Counties Power, Counties Power Consumer Trust, EA Networks, EMA, Entrust, Auckland Federated Farmers, Northpower, Norske Skog, Top Energy, Vector and the Green Party.

Electricity Authority chief executive Carl Hansen says everyone will save money over time, as the new pricing model will lead to more efficient investment in the national grid.