Transmission Pricing Methodology

Following the conclusion of a significant structural reform and consultation process, the Electricity Authority has decided to adopt a new Transmission Pricing Methodology (TPM).

The TPM determines how the grid owner, Transpower, recovers the $800m annual cost of running the national transmission grid from its transmission customers. The grid transports electricity across 12,000 kilometres of transmission lines from where the electricity is generated to industrial customers, and through distributors’ networks to our homes and workplaces.

Rob Bernau, Director of Network Pricing, says getting transmission pricing right is critical and the reforms will make it easier for the electricity sector to support New Zealand’s transition to a low-emissions future.

“The Authority believes households and businesses should pay for the service they receive according to how much they are expected to benefit from it, so the new TPM is centred around a benefit-based charge.

“The old approach was not fit for purpose, smearing transmission costs across the country and encouraging industrial consumers and regional distributors to invest in their own batteries or generation (including diesel generation) simply to avoid paying transmission charges. This meant other New Zealanders had to pay more.

“Another key change in the new TPM is to address the current ‘first mover disadvantage’. Under the new TPM, the transmission customer who first funds the capital cost of a connection asset (the first mover) only pays for what they need – not any extra capacity that Transpower decides to build – and so is on a level playing field with any second mover who connects later.

“The new TPM will encourage investment in renewable generation and electrification of industrial processes – the right investments in the right place and at the right time.

“This will ultimately bring forward investment in new, cheaper renewable generation. The TPM will also help future-proof the system to meet increasing demand and use of distributed energy resources, like EVs, batteries and smart appliances.

“The benefits of the new TPM are significant - over time, it will reduce the cost of electricity at peak times and lead to lower prices overall.

“The new TPM reflects years of review, analysis and valuable input from across the sector. The Authority is confident the new TPM will provide stable and robust transmission pricing, support New Zealand’s transition to low emissions energy, and deliver the best outcomes for consumers,” says Mr Bernau.

Transpower will now implement the new TPM in prices from April 2023.

You can read the decision paper document here.

Media contact:

Rachael Bowie, Strategic Communications Lead
E: rachael.bowie@ea.govt.nz
P: 021 073 7777

The Electricity Authority has started consulting on a proposed new Transmission Pricing Methodology (TPM). The consultation period will run from 8 October for eight weeks, with events being held around the country to ensure the Authority can continue to inform and engage with interested parties.

“The proposed new TPM better positions New Zealand to transition to a low-emissions economy by ensuring the best use of existing and future electricity infrastructure,” says Rob Bernau, Director Network Pricing at the Electricity Authority.

“Transmission pricing matters. It costs New Zealanders $800m each year, and influences how we invest in and use the national grid. The Authority believes it is critical that transmission charges are efficient, and more closely reflect the actual cost of delivering electricity to household consumers and large industrial customers,” says Rob Bernau.

“It is widely agreed that the current TPM is no longer fit for purpose. It unnecessarily requires some consumers to pay a premium when power is most valuable to them, even when the grid has spare capacity. It encourages parties to invest in generation and emerging technologies simply to shift costs on to other consumers, who end up paying more for their electricity than they need to. This will only get worse as new technology gets cheaper.

“It is important to New Zealand’s future that we have a new TPM that supports the electrification of transport and industrial processes at the least cost to New Zealand consumers. The national grid has a key role to play as we transition to a low-emissions economy,” says Rob Bernau.

The Authority acknowledges Transpower’s role in developing the proposed new TPM. “We appreciate the substantial and sustained effort Transpower has put into developing the proposed new TPM which, in our view, is reflected in the high quality of the product,” says Rob Bernau. 

The proposed new TPM and accompanying consultation documents are available on our website, along with a short guide to the TPM.

— ends —

Notes:

• The Electricity Authority is an independent Crown Entity with a statutory objective to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.
• Transmission refers to the transport of electricity around the country, via the national grid, to local distributors. Transpower owns the grid and transmission charges for customers are determined by the TPM. Transmission charges make up approximately 10 per cent of the average consumer’s total power bill.
• The Authority amended its TPM guidelines in 2020 after extensive review and consultation. Transpower then drafted a proposed new TPM, and this was delivered to the Authority on 30 June 2021. The Authority has accepted the vast majority of Transpower’s proposal, but has made some specific, targeted changes.
• The Authority is proposing that new transmission pricing come into effect on 1 April 2023, but there are still several steps remaining in the process which could impact on this.
• TPM events during the consultation period will be held around the country, if COVID alert levels allow them to be, to ensure the Authority can continue to inform and engage with interested parties. Details are as follows (timing TBC):
  • Monday 1 November: Wellington
  • Tuesday 2 November: Wellington (detailed technical event)
  • Wednesday 3 November: Auckland
  • Thursday 4 November: Whangarei
  • Friday 5 November: Tauranga
  • Monday 8 November: Christchurch
  • Tuesday 9 November: Invercargill

Please register your interest for a TPM event by emailing TPM@ea.govt.nz with your preferred location and your full contact details. More details on the events will be available soon, so please read future editions of the newsletter Market Brief(external link) for updates.

For more information email communications@ea.govt.nz

Transpower has released its proposed TPM which it submitted to the Electricity Authority on 30 June 2021. While the Authority appreciates the significant work Transpower has done to date, the Authority does not consider the proposed TPM ready for review by stakeholders or for public consultation as it is still being assessed.

Once the assessment process is complete, the Authority’s Board will decide on and publish a proposed TPM for public consultation. The Authority is targeting consultation to start from October 2021.

Part of the release by Transpower includes the Authority’s request for Transpower to reconsider six aspects of the proposed TPM. These include resolving the first mover disadvantage for connecting parties, ensuring batteries and similar storage systems are on a level playing field with other generation, the allocation of overhead costs, setting the residual charge for a new entrant, and the prudent discount policy.

After considering our feedback, Transpower will decide whether to revise its proposed TPM. The Authority is also still assessing aspects of the proposed TPM that relate to benefit-based charges.

The package released by Transpower includes newly calculated indicative pricing – what each customer’s charges would be if the proposed TPM applied in 2021/22. These are different to the indicative charges released by the Authority in 2020.

Transpower’s new indicative pricing reflects how charges would be calculated under its proposed TPM and uses updated data on the price cap. Some of the matters we referred back to Transpower will affect indicative charges under the proposed TPM, for example, how overheads are recovered.

Due to material differences in the way the charges are presented, Transpower’s indicative charges are not directly comparable with the Authority’s 2020 estimated charges. For example, in the Authority’s 2020 estimates, connection charges were mainly excluded and charges were presented after applying loss and constraint excess (LCE) rebates.

The Authority is aiming for any new transmission pricing to come into effect on 1 April 2023, but there are still several steps remaining in the process which could impact on this. Any new charges will be different to the indicative charges released for a number of reasons, including needing to take account of any new transmission investments, any new customers, and of any customers that have shut down their operations (such as Norske Skog’s Tasman Mill).

We appreciate the industry needs certainty on transmission pricing and we expect these reforms will ultimately deliver that certainty. We encourage interested parties to focus on the proposed TPM that will be released by the Authority during the public consultation period.

The Authority will continue to regularly communicate with interested parties over the next period to ensure it is clear when the public consultation process begins, and how documents released fit into the TPM reform process.