Considered distribution pricing reform vital

Considered distribution pricing reform vital image
News | 21 August, 2023
ENA has welcomed Electricity Authority recognition that EDBs are making progress on key pricing issues, including implementation of the Authority’s preferred approach to peak pricing. This is one of the key outtakes from the Authority’s 'Targeted Reform of Distribution Pricing' issues paper.
In its submission, ENA acknowledged that reform of electricity distribution pricing was vital for New Zealand’s transition to a low-emissions economy, but that any proposed changes needed to be carefully considered and correctly implemented.

The issues paper has raised several matters not previously discussed, in addition to the Authority expressing views on a number of key issues for the first time. Reflecting any Authority views or guidance into EDB pricing decision-making processes and the resulting prices (including appropriate transitions mechanism) takes time; and EDBs only have the opportunity to change their prices once a year.

ENA is concerned that the threat of heavy-handed regulatory intervention via the Authority’s proposed control or call-in options may lead to delays in pricing reform. For example, if EDBs perceive that the Authority is likely to act either via changed guidance or regulatory intervention, they may delay changes until they have certainty over the reform path to avoid having to backtrack if the Authority guidance changes.

ENA believes the best way the Authority can play its critical role in facilitating and driving such reform is by prioritising issues that deliver benefits for consumers and provide clear actionable guidance to individual EDBs on how to address each issue.

For EDBs, a vital consideration when developing prices that signal the cost consequences of usage, is the certainty of response to the signal. The value for EDBs of ‘passive prices’ that send a signal to consumers and rely on the unknown response to that signal is likely to be of lower value than ‘active prices’ where the response is known – ie, direct load control of hot water. This difference in value is subsequently reflected in the price or reward (via lower prices) offered to consumers by EDBs.

ENA also supported the Authority’s intention to monitor the retail market and consumer preferences, and encouraged it to work with the sector to achieve the aim of removing barriers to retailers being billed more cost-reflective prices.

Using actual data for market reconciliation and distribution billing is vital for the electricity sector’s continued evolution. Concerted action by retailers, metering equipment providers (MEPs) and the Authority is key to unlocking the potential and removing barriers from the industry’s and broader economy’s evolution towards an electrified and decarbonised future.

ENA is eager to work with the Authority, and the sector more broadly, on technical matters such as the calculation of long run marginal cost and the subsidy-free band.

Additionally, ENA noted that the protocols and systems that underpin the exchange of data between EDBs and retailers, and the sector more broadly, rely upon the exchange of CSV files. This is no longer considered good practice for information exchange and therefore ENA urges the Authority to undertake a review of the industry’s data exchange processes.