Distribution connection pricing reform

There are currently limited rules about how distributors develop and structure their pricing for energy users (load) looking to connect to their network or upgrade existing connections (connection applicants).

In some places, this is leading to high up-front costs for those wanting to connect. Excessive up-front costs may deter businesses, new infrastructure or housing developments, or push up the costs of those developments that then get passed onto consumers.

In some cases, some connection applicants face inefficiently low up-front costs, which means others on the network are subsidising the true costs of new connections.

Under the existing rules, each distributor can develop their own pricing methodologies. This can add costs and complexity for connection applicants whose businesses extend across regions.

We want to develop rules that make it easier to get electrified businesses and infrastructure up and running, and that deliver good outcomes for consumers, the economy and the environment.

If we don’t, we expect the current settings will result in higher up-front costs, more inefficiencies, less investment, fewer developments, slower electrification, slower decarbonisation – and everyone losing out in the long run.

Full reform of connection pricing methodologies will take time due to its complexity and deep interactions with distributors’ business operations and network management.

However, a phased approach allows us to address some known issues more quickly. For example, we are proposing putting in guardrails to stop up-front connection costs rising too high.

The first phase proposes a package of fast-track measures that would make significant progress towards efficient pricing, while laying the foundation for further regulatory change in the future.

The ways we live, work and travel are becoming increasingly electrified and the rules that underpin the electricity system must keep up.

As part of New Zealand’s electrification, more energy users – such as industrial plants, big businesses, new data centres, EV charging stations and new housing developments – are seeking new or larger connections directly to the distribution network.

Getting the rules around connection pricing methodologies right is one essential building block to support the growth of businesses and infrastructure, and efficient electrification of the economy.

We consulted on distribution pricing in July 2023. In May 2024, we outlined our intentions to develop a proposed Code amendment for connection pricing in our ‘Distribution Pricing Reform: Next Steps’ paper. We were concerned that inefficiently high up-front charges are a barrier for new consumers looking to connect to the network, or existing consumers wanting to upgrade their connections.

In June 2024, we announced a technical group made up of industry representatives to assist with testing the workability of our proposed Code amendments and their implementation.