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Electricity networks told to get on with pricing reform

Friday 9th November 2018

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Electricity lines companies have been told to accelerate changes to their pricing and not wait until the next regulatory period starting in 2020.

The Electricity Authority, frustrated by the lack of action by some networks, has written to the directors of all distribution companies telling them the need for change is urgent and cannot be delayed.

Without change, the charging structures of many lines companies risk increasing peak period demand to the cost of all consumers, while potentially also raising charges to households without solar panels.

“The authority needs to see the distribution networks act with ambition and urgency on reforming their price structures. They should put in place concrete transition plans now, rather than wait,” it says in a six-page paper.

“Consumers experience the adverse effects of inefficient prices now. The size of the problem will only continue to grow with the uptake of EVs, solar panels and batteries. Distributors should not wait until 2020 to start their transition to more efficient prices.”

To keep the pressure on, the regulator now plans to rate the 29 lines companies, based on the efficiency of their charging structure, early next year.

Network charges account for more than a quarter of average residential power bills. This rises to about 37 percent when the costs of national grid operator Transpower are included.

But because most are based on flat per-kilowatt-hour charges they provide no price signal to consumers as to when they should use more or less electricity. They also risk allowing householders installing solar panels to avoid their fair share of network charges, in turn putting more of that cost on families without solar.

Networks are already working to change the way they charge and the Electricity Networks Association (ENA) has been leading a technical programme on the options available. At least eight lines companies – supplying more than 40 percent of the country - already offer time-of-use charges for households. Three others also charge based on network peak demand.

But there are real concerns among networks, most of which are community-owned, as to how shifting to demand-based or time-of-use pricing could impact consumers without the means, or understanding, to adapt their usage.

Avoiding complexity is another driver. The Lines Company, based in Te Kuiti, last year scrapped its decade-old demand-based charges due to on-going opposition from some customers who didn’t understand or trust it. The company has since opted for time-of-use charges instead.

Last month the ENA said the changes planned are the biggest in 100 years and many of its members wouldn’t start the work until 2020. Among the issues yet to be resolved was the rural-urban cross-subsidy that exists on most networks.

“Changes must be supported by consumers, and other important stakeholders such as electricity retailers. That’s why discussions on pricing reform need to focus on the end-consumer and encourage consumers’ active participation around new pricing options,” the ENA said in its submission to the government’s review of electricity pricing.

“Pricing reform must not be dictated by economic theories, as the impacts on people are more important.”

The authority says it has been heartened by the ENA’s work, but disappointed by the plans of some networks which have “lacked rigour and commitment to timeframes.”

“Given the cost pressures faced by consumers and the looming commercial implications for electricity distribution businesses of inefficient investments, the need for price reform is more urgent than ever.”

It plans a consultation shortly on changes it may make to its principles for distribution pricing. But in the meantime it has promoted three options, none of which it considers complex and all of which would be an improvement on current models.

Each would comprise a fixed charge. Options would then include a seasonal time-of-use charge, a static demand charge, or a dynamic demand charge.

The authority says it is up to networks to develop the best pricing for their local circumstances. It acknowledged that technical implementation issues would have to be resolved, but also noted that some firms have already done that.

“We expect distributors to put in place concrete transition plans now and make a start on them, rather than wait until 2020 to begin working on a transition.”


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