Default price-quality paths for electricity distribution businesses

Consultation overview

The Commerce Commission (the Commission) is responsible for setting a default “price-quality path” for most electricity distribution businesses (EDBs) across Aotearoa. The default price-quality path sets out:

• the maximum average price or total allowable revenue that EDBs – like lines companies, for example – can charge
• the standards for the quality of service that each business must meet, to ensure the quality of their service is not reduced in order to maximise profit.

EDBs must assess their compliance with the default price-quality path every year.

The current default price-quality path (known as DPP3) is set to expire on 31 March 2025, and the Commission is seeking feedback on the next version, DPP4. The new version has been proposed with regards to several factors, including:

• a transition to increased electrification
• the impact of climate change
• high inflation, and 
• the cost pressures facing both EDBs and electricity consumers.

Submissions on this consultation closed on 19 December 2023.

Commerce Commission consultation: 2025 reset of the electricity default price-quality path(external link)

Our recommendations

In our feedback to the Commission we focused our comments on what we feel are the key areas of concern. We:

• broadly agree with the Commission’s commentary on the changes facing the sector. However, we consider there should be a greater focus on demand management and that this must be integral to EDBs’ forecasting
• agree with the Commission’s comments that demand-side management and energy efficiency initiatives have the potential to defer or avoid investment that would otherwise be needed to meet peak demand, hence reducing costs to consumers. 
• agree that EDBs must adapt to emerging consumer preferences and recognise the role of distributed energy resources (DER) in managing electricity peaks.

However, we disagree with the commission’s initial view that a specific incentive for demand-side management and energy efficiency is not required. We believe this needs to be considered to help control costs and ensure EDBs are not just taking a “business-as-usual” approach.

We think a strong focus on controlling costs is essential, particularly given the Commission anticipates inflationary pressures will see consumers’ bills 'increase significantly' in the regulatory period. Strong incentives are therefore appropriate to help ensure EDBs keep consumers’ costs to a minimum.

If the long-term interests of consumers are to be met, we think demand management and reshaping the demand side of our electricity system must be given at least the same importance as investment in network infrastructure. 

EDBs have an important role to play in this shift, supporting consumer participation in demand-side management and the use of DER, as well as helping consumers understand the cost implications of different decisions about electricity use. 

Finally, we note the Commission’s comments regarding the importance of communicating clearly and accurately the likely impact on consumers’ bills from this reset. We welcome the Commission’s focus on providing consumers with clearer information.

Developing a model electricity bill