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Principles or model approaches to distribution pricing

Background

In early 2009 the Commission commenced a project to develop pricing principles or model approaches for distributors (the project) in accordance with the Electricity Act 1992 (Act) and to meet the Commission’s objectives as stated in the Government Policy Statement (GPS), in particular: 

  • an initial preference for a voluntary approach which the distributors can be evaluated and monitored against;
  • distribution pricing that ensures line losses and constraints are managed;
  • market entry by retailers is facilitated and competition is enhanced by standardising and simplifying tariff structures and contractual arrangements (if required);
  • barriers to demand-side participation are removed (if required); 
  • any consequential changes in rural line charges are consistent with changes in urban line charges; and
  • addresses impact of the low fixed charge requirement.


The last substantive work on distribution pricing was undertaken by the Pricing Approaches Working Group (PAWG). The Commission used the final PAWG paper pdf [839 KB] as a starting point for this project as it received support from industry participants at the time.

In addition, in February and April 2009, the Commission engaged distributors through the Electricity Networks Association (ENA) to better understand changes in pricing since the PAWG report was published.

The Commission asked distributors to report on how their pricing methodologies may have changed since 2005, and in particular the steps they have taken in implementing part or all of the PAWG recommendations.  

Consultation (June/July 2009)

On 5 June 2009 the Commission published a paper on a draft proposed model approach to distribution pricing for consultation. The deadline for submissions was 5pm on Friday 10 July 2009. The Commission received 27 submissions.

Workshop (June 2009)

As part of the consultation on a draft proposed model approach to distribution pricing, the Commission held a workshop on 17 June 2009 in Wellington to give interested parties an opportunity to present their initial views and to interact with the Commission.

 

Summary of Submissions and Discussion Paper (October 2009)

The Commission completed an assessment of the submissions received and comments made at the 17 June 2009 workshop. 

The assessment led to a reconsideration of the degree of prescription contained in the Commission’s proposed approach.  The Commission formed a preliminary view that:

  • a principles-based approach should be adopted;
  • guidelines (methodological requirements) should be provided to assist stakeholders with interpreting and implementing the proposed pricing principles.

In October 2009 the Commission invited interested parties to provide feedback on the draft pricing principles and methodological requirements by the 30 October 2009.

The Commission received 18 submissions.

Workshop (October 2009)

To assist in forming a final view on the proposed approach to distribution pricing, the Commission held a workshop for industry participants and other interested stakeholders on 12 October 2009 in Wellington.

This workshop had the following objectives:

  1. understanding retailers’ concerns as to the aspects of distribution pricing that can be a barrier to retail competition;
  2. identifying what aspects of distribution pricing may be relatively easily standardised, including confirming common terminology and definitions for distribution access and pricing, as well as the basis for a common tariff format across distributors (including standardisation of customer categories).
  3. seeking feedback from stakeholders on revised draft pricing principles and methodological requirements; and
  4. discussing the merits, or otherwise, of a more or less mandatory approach.

As part of the preparation and facilitation of the workshop, the Commission has approached a retailer (Mercury Energy - Nigel Williams) and a distributor (Orion - Rob Jamieson ) to consider what matters could be discussed and progressed under item (b) above.  Interested parties were encouraged to contact the representatives mentioned above with suggestions as to what could be standardised by mutual agreement between retailers and distributors.

The Commission will factor in any appropriate material provided or discussed at the workshop into its final approach.

The following presentations were made at the workshop:

 

Distribution pricing administrative issues working group

A distribution pricing working group has been formed to discuss a number of administrative issues relating to the interface between retailers and distributors.

The role of the working group is to focus on issues discussed at the morning session of  the 12 October 2009 workshop, including:

  •  wash-ups;
  • unnecessary complexity;
  • unaccounted-for electricity; and
  • common terminology.

It is expected that the working group will meet for three half-days, and will make a recommendation to the Commission by the end of November 2009.

Last update on 05 November 2009 11:14 AM