Electricity Authority update on transmission pricing

26 June 2018

The Electricity Authority has today updated stakeholders about the next steps for its review into transmission pricing guidelines.

The guidelines provide direction for the transmission pricing methodology (TPM) Transpower uses to charge its customers in order to recover costs associated with building and operating the national transmission grid.

Electricity Authority Chief Executive Carl Hansen says, “The Authority has in the past year reviewed all aspects of its work on transmission pricing and the Board is now in a position to indicate the next steps with the project.

“We’ve been thinking hard about a benefit-based approach to charging over the last year and want to send a signal that this will continue to be a key part of our next proposal. We expect to adopt pragmatic approaches where possible in order to get to a better and more workable solution.

“The current methodology has several very unsatisfactory features, one of which is that parties benefiting from transmission upgrades don’t pay for the full cost of those upgrades, and parties that don’t benefit at all are paying for them. This is leading to poor outcomes for consumers overall.

“Batteries are getting cheaper, which will be great for managing pressure points in the electricity system. However, the current transmission pricing approach will encourage businesses to buy them when the purpose is largely to shift their transmission charges to other customers. This will make electricity more expensive for others and not reduce the total cost. This is clearly not sustainable.”

Mr Hansen says reforming the TPM is needed now more than ever as new electricity technologies and business models are emerging fast in the sector.

“The longer the current transmission pricing methodology stays in place, the greater the risk that investors will make decisions that end up costing consumers more through higher transmission charges over the long term.

“Also, a substantial increase in low-emissions electricity is needed to allow for greater electrification of major industries and transport in the future.

“There have been very clear calls, in a recent Transpower forum, for the transmission pricing review and changes to distribution pricing to be completed as soon as possible. The changes were considered to be needed to provide a sounder footing for further investment in renewable generation and new technologies such as batteries and electric vehicles.”

He says a new cost-benefit analysis and modelling of potential impacts will need to be prepared as part of finalising a formal proposal for consultation.

“We can’t jump to any conclusions, about who will pay what and when, before this work is undertaken. But the Authority is confident from the work it has done so far that a benefit-based charging regime can be implemented without imposing a shock on consumers’ power bills compared with what they pay now.”

Mr Hansen says a date for consultation cannot yet be announced as the amount of work and time needed to finalise the policy, undertake the cost-benefit analysis and modelling still needs to be finalised.

“While we want to be pragmatic where possible, it’s important we deliver a high quality proposal for consultation.”

He says the Authority recognises a considerable amount of work has already been undertaken and feedback has been received on these matters which will materially inform the formal proposal.

“This is a priority piece of work for the Authority and we want a new transmission pricing regime to be in place as soon as possible.”

The Authority expects to provide another update in December 2018.

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