2024 is set to be a busy year for electricity distribution businesses (EDBs) with several significant regulatory changes in the pipeline.

In this legal update we focus on regulatory changes being progressed by the Electricity Authority (Authority) in 2024. 

Future operation of New Zealand’s power system

The Authority is consulting currently on future challenges and opportunities with the operation of the power system.^[1]

The increasing penetration of distributed energy resources (DER) and shift from passive to active consumers can make a big contribution to reducing costs and achieving New Zealand’s greenhouse gas emissions targets. However, capitalising on this opportunity will likely require greater co-ordination across the whole power system, both in real time and for planning purposes (eg outages and network development planning).

The consultation paper discusses four high-level issues:

• Is there sufficient coordination of system operation?
• Are existing system operation requirements compatible with DER?
• Is there sufficient coordination of network planning?
• Are there significant conflicts of interest associated with network ownership, operation and planning?

The consultation paper discusses the possibility of having one or more distribution system operators, which could be independent of the EDBs. Distribution system operators would co-ordinate activity, including DER activity, on distribution networks and work closely with the transmission system operator to ensure power quality is maintained and there is sufficient overall capacity. Another option identified is to have an integrated distribution and transmission system operator. 

Submissions on the consultation paper are due by 11 April 2024.

Distribution pricing

In April 2024 the Authority will publish an update on its targeted reform of distribution pricing, following on from consultation on its 2023 issues paper.^[2] We expect the Authority will consult on related amendments to the Electricity Industry Participation Code (Code) later in 2024.

Based on the issues paper, we expect the Authority will move towards mandatory distribution pricing rules. The Authority has expressed some dissatisfaction with how EDBs have responded so far to its, currently non-binding, distribution pricing principles and its publication of distribution pricing scorecards and rankings. 

The Authority has indicated new distribution pricing rules will address the following issues:

• Revenue allocation to customer groups.
• Peak and off-peak prices.
• New connection pricing.
• Retailer pass-through of distribution pricing signals.

We do not expect any new distribution pricing rules would have the same levels of prescription and complexity as the transmission pricing methodology. However, it is clear the Authority wishes to strengthen its regulation of distribution pricing. Specifically, the Authority favours distribution pricing that includes:

• Strong peak pricing signals to ease congestion.
• Fixed prices to recover “residual” revenue.
• Capital contribution policies that address first mover. disadvantage.

First mover disadvantage happens when a first mover customer pays the capital cost of a network augmentation which later connecting customers can benefit from without contributing to that cost. The new transmission pricing methodology deals with this at the grid level by making later connecting customers pay Transpower a contribution to the capital cost of connection assets, which Transpower then rebates back to the first mover. We see this mechanism as an effective way to remove a potential disincentive for parties to move first on electrification and renewable energy development in some locations, and it could be replicated in the distribution context.   

Updating other regulatory settings for distribution    

The Authority also intends to tackle several non-price regulatory issues relating to distribution, as discussed in its October 2023 Delivering Key Distribution Sector Reform work programme.^[3]  These priority projects include:

• Improving EDBs’ and flexibility traders’ access to metering information and visibility of DER
  The Authority is contemplating Code changes to allow meter equipment providers to supply point-level consumption and power quality data directly to EDBs and flexibility traders (such as demand response aggregators).  This would at least partially resolve the long-standing question of who in the electricity supply chain “owns” consumer data.  The Authority is also contemplating Code changes to make meter equipment providers offer “pay-as-you-go” meter data access to any person.
  The Authority plans to start consultation on these topics in April and May 2024 and to make any Code amendments in late 2024.

• Addressing non-price barriers to the efficient connection of load
  This project will focus on whether there should be an equivalent of Part 6 of the Code, which relates to the connection of distributed generation, for the connection of load to distribution networks.  New rules may include a choregraphed connection process and default terms and conditions for at least large load connections, mirroring those currently in Part 6 of the Code for distributed generation.
  The Authority plans to release an issues paper on this topic in April 2024 and make a final decision in December 2025.

• Addressing barriers to efficient prioritisation by EDBs of large-scale distributed generation connections
  This project will consider the suitability of connection prioritisation models used internationally and by Transpower, as they may be applied to connecting distributed generation.
  Currently, the Authority’s work programme does not include a wider review of the distributed generation rules in Part 6 of the Code.  However, the Authority says several other aspects of Part 6 will be revisited near the end of the current work programme.^[4]
  The Authority plans to release an issues paper on the prioritisation topic in April 2024 and make a final decision in December 2025.

• Producing guidance on imposing arm’s-length rules for non-network solutions
  This project will produce a threshold that, when crossed, would lead the Authority to extend the arm’s-length rules in Part 6A of the Code to the involvement of EDBs in non-network solutions operating on their networks (not just distributed generation).
  The Authority plans to release an issues paper on this topic in June 2024.

Other regulatory changes

There are other regulatory changes of interest to EDBs coming up in 2024:

• The Commerce Commission’s (Commission’s) reset of the default price path for EDBs (DPP4).^[5] Consultation on the Commission’s draft decisions for DPP4 will start in May 2024, with final decisions in June 2024.
• Potential, and long awaited, changes to the Electricity (Hazards from Trees) Regulations 2003. MBIE finished its consultation on reform options in May 2023.^[6]
• The introduction of fast-track consenting processes for major infrastructure projects, which are likely to cover regionally significant distribution network augmentations. The new Bill is expected to be introduced in early March 2024 and will be followed by a four-month select committee process.

Also, in a recent FYI we discussed the Authority’s plans to update its Consumer Care Guidelines and make them mandatory. This will mostly impact retailers, but there will likely be implications for how retailers and EDBs work together, including for disconnections.

A combined Commission and Authority work programme for 2023/24 is available on the Authority’s website.^[7] 

Get in touch

Simpson Grierson will be monitoring developments in this space. If you would like to learn more about anything discussed in this article, how it could affect you or assistance in preparing a submission, please get in touch with one of our experts.