Last week, the Electricity Authority (Authority) released an update on next steps in its targeted reform of distribution pricing (Report). The Report also provides updates on the Authority’s plans for three other aspects of distribution pricing - peak and off-peak pricing, retailer response and target revenue allocation.

Connection pricing

Connection pricing refers to upfront payments for connecting to a network or altering an existing connection.

In its 2023 distribution pricing issues paper (Issues Paper), the Authority expressed its intention to move toward mandatory connection pricing rules.^[1] The Report confirms the Authority’s intention to progress this through an amendment to the Electricity Participation Code 2010 (Code).

The Authority says EDBs currently lack “strong or consistent incentives to ensure connection pricing is efficient”. The Authority believes EDBs may be demanding inefficiently high upfront contributions from customers to reduce the scale of EDBs’ financing task, cost recovery risks, and initial price impacts for other customers. The Authority is concerned that these high upfront charges may deter efficient connection growth, weaken distributor incentives for efficient cost control and deter efficient investment options.

The Authority’s first step will be to appoint a technical group to assist with drafting the new connection pricing rules. The technical group will provide stakeholder representatives with an opportunity to be involved in developing the proposed Code amendment, including transition arrangements for impacted EDBs.

The Authority intends to begin consultation on the proposed Code amendment in October 2024. Subject to the consultation outcome, the Authority is looking to amend the Code in 2025.

Peak and off-peak pricing

The Authority wants EDBs to raise prices during peak electricity demand periods to signal the cost consequences of network usage during periods of congestion. Congestion pricing creates a pay-off for network users to limit their electricity use during peak periods. Conversely, the Authority is concerned about EDBs setting material usage charges for off-peak periods as it may deter efficient usage, reduce the cost advantage of electrification technologies, and risk stimulating off-peak generation.

The Authority wants to encourage EDBs to maintain “efficient peak and off-peak pricing” but does not favour direct regulatory intervention in the form of rules at this stage. Instead, the Authority plans to refine its distribution pricing practice note and its approach to distribution pricing scorecards.

In practice, this means the Authority will not be using its distribution scorecard system in 2024, instead focusing on refining the guidance it gives to EDBs. EDBs can expect more explicit guidance on the Authority’s expectations for peak and off-peak pricing in the form of an open letter this May.

Retailer response

The Authority stresses the need for retailers to face cost-reflective, time-varying distribution price signals and pass these signals onto consumers. There are several issues the Authority believes are preventing retailers from doing this. In particular, the Authority is concerned that:

• some EDBs are assigning Installation Control Points (ICPs) with suitable smart meters to flat-rate distribution tariffs; and
• some retailers are failing to submit to EDBs time of use data based on actual consumption, even for ICPs with smart meters that record this data.

However, the Authority acknowledges that EDBs are making efforts to resolve these problems and is satisfied with voluntary progress on assigning ICPs to time-varying distribution tariffs. The Authority will not be making a regulatory intervention at this stage and will instead continue to monitor progress on the issue. The Authority is also considering providing EDBs with guidance on tariff assignment.

Target Revenue Allocation

The Authority previously stated its intention to change how EDBs allocate target revenue between customer groups.

The Authority agrees with industry submissions on the Issues Paper that more guidance is needed in this area and a regulatory intervention would be premature. The Authority is considering developing a technical guidance note for EDBs on target revenue allocation within the next financial year.

Get in touch

We will continue to monitor developments in this are area. In the meantime, if you have any questions about distribution prices or the Authority’s targeted reform, please contact one of our experts.

Thanks to Sam Chaytor-Waddy for helping to write this legal update.