Distribution connection pricing reform

Distribution connection pricing proposed Code amendment

Upcoming Open Closed Decision
View cross-submissions Cross-submissions closed 24 January 2025
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Consultation

We’re seeking feedback on a package of proposals that aim to make significant progress towards efficient connection pricing.

We’re taking a phased approach to regulating efficient pricing methodologies, and the proposals in this consultation paper represent the Authority’s first step.

In this consultation, we’re seeking feedback on proposed changes to pricing methodologies and mechanisms to support implementation. This package of proposed changes aims to:

  • allocate costs for enhancement and network capacity efficiently
  • rebate parties who fund network extensions
  • improve transparency
  • improve negotiations
  • safeguard against distributors increasing their reliance on up-front charges
  • facilitate price-quality path reviews.

Our proposals would not mean households or other consumers on the network subsidise new connections. We envisage that connection applicants would pay all of the costs of their connection through a combination of up-front and ongoing charges.

The Authority is open to potential solutions to the problems we are addressing with our proposals, and we welcome alternative suggestions on how to progress towards more efficient connection pricing methodologies.

*Note on 26 November the consultation period was extended by 2 weeks. Submissions closed at 5pm, Friday 20 December and are available below. Cross-submissions are now due by 5pm, Friday 24 January 2025.

Consultation paper

Distribution connection pricing proposed Code amendment - consultation paper

Distribution connection pricing proposed Code amendment - consultation paper

Webinar

We held a one-hour webinar on Monday 11 November 2024 to talk through the proposals in this consultation paper and answer questions. The webinar included a presentation about the complementary Network connections project - Stage one consultation with proposals about the application process for new and enlarged connections. Watch the webinar and read the Q&As.

FAQs

1. Is the Authority’s intention to eventually bring all distributors’ reliance levels down to 47%?

No. The Authority proposes the reliance limits are fixed, noting they could be superseded if the Authority later implements more comprehensive reform.

We have proposed two types of reliance limits – depending on a distributor’s current circumstances and pricing approaches. For example, those with already high reliance levels may have limited ability to reduce their reliance in the near term.

We also present two alternative options in our consultation paper – a ‘sinking lid’ and a ‘step-change’ approach. These alternative options would bring all distributors’ reliance levels down to 47% from 1 April 2030. We are seeking views on these three approaches.

2. What is the impact on households and businesses already connected to the network?

Over time, we expect these proposals would reduce charges for consumers as the efficiency of connection arrangements increases and utilisation of the networks improves.

In the short term, one of the proposals would prevent some lines companies with a very high reliance on capital contributions from increasing their connection charges even further. This may mean those lines companies increase their on-going charges for consumers instead.

Although the impact will vary between lines companies, we estimate the impact for the most affected residential consumers to initially be relatively small – about $0.71 extra per month from April 2026 through to March 2030.

3. Does the proposal to cap reliance on up-front charges mean distributors won’t be able to profit from new connections?

The proposals do not stop distributors from making a profit from new or enlarged connections. The proposals are designed to rein in high up-front connection charges, which have risen significantly in some areas over the last decade.

Under the proposed changes, we expect distributors would recover the costs of providing a connection through a combination of up-front and ongoing charges.

4. The proposed ‘pioneer scheme’ would apply for connections that cost more than $30,000 (CPI adjusted). What about expensive connections less than this?

Distributors could have a lower threshold for establishing a pioneer scheme – either as their preferred approach or in certain circumstances where they consider it is appropriate.

The ‘pioneer scheme’ – as similarly used in other countries – would ensure those who are first to connect at a location don’t pay much higher up-front charges than those who follow. This would avoid the problem of ‘first-mover disadvantage’ where the first to connect at a new location pay much higher costs than those who follow.

5. What if a distributor can demonstrate that efficient connection pricing is more than the proposed 47% reliance limit?

It’s possible a higher reliance limit could better suit a distributor depending on their specific circumstances.

Distributors can apply for exemptions under section 11(1)(b) of the Electricity Industry Act 2010. The Authority may grant an exemption only if it is satisfied of one of the matters in section 11(2) that doing so would “better achieve the Authority’s objectives than requiring compliance”.

6. Distributors with a lot of new and larger connections need revenue to fund the infrastructure to support that growth. Will imposing a reliance level mean price increases to fund that growth?

Reliance limits will affect each distributor differently, depending on a range of factors, including expenditure that’s driven by the growth of new connections and growth of demand at each connection.

The reliance limit is set as a proportion of connection and system growth. This means a distributor needing to fund a lot of growth on its network would be able to recover more revenue through connection charges than a distributor with much lower growth.

7. Why haven’t you proposed a minimum reliance level?

We have not seen a trend of lower reliance on capital contributions so do not see this as an issue at present. However, the connection charge reconciliation requirement will provide better insight on whether connection charges are being set inefficiently low, which could inform future reform.

8. What happens if a distributor exceeds its reliance limit?

If reliance levels are introduced to the Code as currently proposed, a distributor would be required to make best endeavours to ensure its policy, methodology or schedule is unlikely to result in its reliance limit being exceeded. Failure to meet this requirement would be either a Code or contractual breach, depending on the other proposals in this consultation.

Industry participants are obligated to report a breach of the Code to the Authority. If the Authority finds that the obligation is satisfied, there are no further consequences. If the obligation has not been satisfied, the processes set out in the Electricity Industry (Enforcement) Regulations 2010 regulations apply, including potentially the involvement of the Rulings Panel.

9. If access seekers raise a complaint about connection charges, could the Authority make the distributor charge based on the standardised connection charge reconciliation methodology?

No we could not. This proposal introduces a requirement to provide information. It would not empower the Authority to tell distributors how to set their connection charges. A complaint would only be able to address whether the disclosure is consistent with the disclosure requirements.

Under the proposed changes, distributors can set a connection charge that differs from what is calculated based on the standardised connection charge reconciliation methodology, subject to the reliance limit. Our proposal would require distributors to calculate the reconciliation for each connection and make this available to the access seeker, if requested.

10. How do you know the ‘neutral’ and ‘balance’ points result in efficient prices?

The ‘neutral point’ is based on the economic theory that efficient prices are within the subsidy-free range, and the lower bound of the range is where incremental revenue matches incremental costs.

The ‘balance point’ is where new connections make a similar contribution to existing customers of the same type (or consumer group). This is consistent with the theory that network access pricing is efficient if similar customers face similar charges.

Complementary consultation

Alongside this consultation, we welcome your feedback in the Network connections project – Stage one consultation.

This consultation runs over the same time period and aims improve the efficiency of the application processes for connecting to the network, or upgrading an existing connection.

Together, the proposals across these consultations aim to support more efficient investment in infrastructure and businesses, and in distribution networks.

Correspondence

Submissions

Download all submissions (.zip)

Cross-submissions

Download all cross-submissions (.zip)