Historical analysis of electricity costs

The Authority has published a report comparing retail prices to the costs actually incurred to supply electricity to consumers.

The analysis shows that electricity prices were far below the actual cost of supply for many decades, and that current charges to consumers overall are almost in line with the historical cost of supply.  This finding is contrary to claims that consumers have been over-charged for electricity for more than 30 years and they have already paid off past investments. 

The report also shows that steep rises in household electricity prices since 1985 appear to have been largely driven by the removal of cross-subsidies and more recently by higher costs to generate and supply electricity.  Although average costs reduced in the 1990s, they increased quite sharply from the early 2000s as a result of increasing fuel costs, the increase to GST in 2010 and more recently increases in transmission and distribution charges.

The analysis suggests that setting current electricity charges on the basis of historical cost could increase prices for consumers, rather than reduce them.  Prices would have to rise to achieve a 10% return on historical generation investments (before taxes and after adjusting for inflation), which was the rate the New Zealand Institute of Economic Research (NZIER) recommended to the Authority for the analysis.  Even at a low return on capital, such as a 6% rate, there would be little scope to reduce electricity charges for consumers.   

• Report and associated models

Consultation on retail data issues

The Authority is seeking feedback on issues relating to incomplete retail data and the lack of widespread confidence that the retail market is competitive and delivering benefits to consumers. Feedback is also sought on the preliminary options that might address the issues identified.

The Authority is not currently proposing market facilitation measures or Code amendments, but may carry out further consultation on proposals to resolve any issues with retail data, including consulting on Code amendment proposals.

The Authority intends holding a forum in late March 2014 to discuss feedback about retail data issues and possible options for addressing any issues. Further details about the forum will be advised in February.

• Retail data issues

Submissions on this issues paper are due by 5pm Tuesday, 11 March 2014.

Prosecution for alleged breach of the Electricity Industry Act

The Authority has completed its investigation and is now prosecuting the OtagoNet Joint Venture for an alleged breach of section 105(4)(a) of the Electricity Industry Act 2010.  This alleged breach relates to the failure to resume supply of line function services, or electricity from an alternative source, as soon as was reasonable in the circumstances.

The first appearance date for these proceedings was scheduled for 28 January 2014 in the Dunedin District Court.  It has now been adjourned until further notice to allow the parties  to work through criminal procedure matters.

The Authority will adhere to the restrictions on commenting on the proceedings as required under the media protocol for prosecutors.

Seventh stress test results

Reports on the stress test results for the January-March 2014 quarter have been published. The stress testing regime (referred to in the Code as Spot Price Risk Disclosure) requires certain participants in the wholesale electricity market to apply a set of standard stress tests to their market position, and report the results to their respective Boards and to an independent registrar appointed by the Authority.

Questions about the reports or the stress tests can be directed to info@ea.govt.nz. Please include 'stress test' in the subject line.

• Reports and commentary

Current consultations

 

Transmission Pricing Methodology: avoided cost of transmission payments for distributed generation

The Authority is consulting on the working paper on avoided cost of transmission payments (ACOT) for distributed generation, which sets out to understand the efficiency implications of any changes to the transmission pricing methodology (TPM) in relation to ACOT payments.

• Transmission Pricing Methodology: avoided cost of transmission payments for distributed generation

Started: 19/11/2013; Ending: 31/01/2014 5pm

An operational review of Part 6 of the Code - second consultation

The Authority is undertaking a second consultation on the operational review of Part 6 of the Code.  Part 6 relates to the connection of distributed generation.  After consideration of the submissions received on the first consultation paper, the Authority has revised a small number of the proposals and now seeks submissions on these.

• An operational review of Part 6 of the Code – second consultation

Started: 03/12/2013; Ending: 31/01/2014 5pm
 

Consultation on FTR settlement in event of a delay to final prices

The Authority is consulting on changes to the clearing manager invoices to: 

1. allow flexibility for invoicing timeframes if the publication of final prices is delayed
2. enable the clearing manager, if it receives revised reconciliation information after issuing invoices, to either prepare revised invoices or seek direction from the Authority, depending on when it receives the revised reconciliation information.

• Consultation on FTR settlement in event of a delay to final prices

Started: 10/12/2013; Ending: 10/02/2014 5pm

Switch process re-engineering – Review of Schedule 11.3

The Authority has invited submissions on the regulatory statement and proposed amendment, including drafting comments, for an amendment to Schedule 11.3 of the Code. The purpose of the proposed amendment is to improve the efficiency of the process for switching ICPs between traders.

• Switch process re-engineering paper

Started: 20/12/2013; Ending: 28/02/2014 5pm
 

Efficient procurement of extended reserves - second consultation

The Authority is seeking feedback on a proposal to introduce an approach whereby the system operator ‘procures’ automatic under-frequency load shedding, or AUFLS, (currently being the only type of ‘extended reserves’) from transmission-connected loads. The proposal seeks to address problems with the existing common obligation approach which results in some inefficient selection of loads for AUFLS.

• Efficient procurement of extended reserves - second consultation

Started: 21/01/2014; Ending: 04/03/2014 5pm
 

Transmission Pricing Methodology: Use of loss and constraint excess (LCE) to offset transmission charges

As part of its review of the TPM in the Code, the Authority is developing its response to submissions and cross submissions in relation to the consultation paper ‘Transmission Pricing Methodology: issues and proposal’ dated 10 October 2012 and to points raised in the May 2013 TPM conference.

The Authority has prepared the ‘Use of LCE to offset transmission charges’ working paper to explore some submitters’ suggestions that the proposed use of LCE to offset transmission charges would distort the otherwise efficient wholesale market signals. This working paper will inform a second issues paper, which is due to be released in 2014.

• Transmission Pricing Methodology: Use of loss and constraint excess (LCE) to offset transmission charges

Started: 21/01/2014; Ending: 04/03/2014 5pm
 

Transmission Pricing Methodology: Beneficiaries pay working paper

Also as part of its TPM review, the Authority has prepared the ‘Beneficiaries-pay options’ working paper to examine different options for applying a beneficiaries-pay charge. This working paper will inform the second issues paper, mentioned above, which is due to be released in 2014.

• Transmission Pricing Methodology: Beneficiaries pay working paper

Started: 21/01/2014; Ending: 25/03/2014 5pm