Changes To Distribution Pricing Could Create Price Shock

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More Efficient Electricity Distribution Pricing Could Create Price Shock

Although the Electricity Authority (EA) is being urged to speed up distribution pricing reform, they are advised to do so cautiously. If done hastily, the process would create a disturbing price shock for many customers.

The Electricity Networks Association (ENA), along with organizations advocating for the change including the Electricity Retailers Association warn the EA to implement the reform carefully. Working groups including retailers have been set up by the ENA to create an implementation plan and the EA has been encouraged to participate, too.

Multiple Issues Could Potentially be Created from Poor Implementation

Already, the group has determined that demand and capacity-based pricing options would require years to implement for some industry participants. If poorly implemented, the group identified that a large group of consumers would be negatively impacted. The bill shock would be felt most by Kiwis who are already financially strapped.

Research also showed that in the short-term, customers who are unable to access new technologies are likely to face higher bills.

Besides upsetting customers, a sudden distribution pricing reform could alienate stakeholders including retailers. Risks of political backlash are also a concern.

Tariff Reform Advocated for Years

A tariff reform came about after the Electricity Retailers Association advocated for several years. Concerns about pricing not reflecting costs and encouraging inefficient behaviour brought the concern to fruition.

ERANZ agreed and suggested that new technology such as solar would only make the issue worse.

Although the Electricity Retailers Association is supportive of the EA’s proposals to further analyse the change being undertaken by distributors, it cautions that effective execution of the pricing reform is necessary.

Fundamental Changes Wouldn’t be Immediately Implemented

Retailers would require time to implement the essential changes and to explain them to their customer base. That’s why an industry-wide roadmap could provide effective direction for the cost reflective distribution tariff reform.

The ENA is in agreeance with the EA retailers that they shouldn’t have to pass on network prices to their customers. ERANZ agreed with the EA that it should be up to retailers to pass on distribution pricing changes to customers.

Pricing Reform Decisions Expected in April 2020

The ENA has estimated that pricing reform decisions will be available in April 2020 followed by phasing in of new options.

Wondering how this could affect your power bill? We’ll keep you posted! Check our blog regularly for updates on the latest news in New Zealand’s power industry.