8/06/2023·2 mins to read
Electricity distributors raise concerns about historical data in DPP reset
Electricity Distribution Businesses (EDBs) supplying electricity from the national grid to homes and businesses are regulated to limit excessive profits while encouraging investment and innovation.
The Commerce Commission is seeking submissions on its discussion paper outlining the process it intends to follow to establish the next default price-quality path (DPP) for EDBs.
What does the DPP reset cover?
As part of the DPP reset, the Commission must decide:
- Starting prices
- Standard rate of change based on productivity improvements
- Alternative rates of change to minimise price shocks to consumers or undue financial hardship to EDBs
- Appropriate quality standards
- Performance and efficiency incentives, and compliance requirements
- How the Commission will assess compliance with the DPP
- Whether the 2023 Input Methodologies (IMs) Review means that any changes are required.
Concerns over the use of historical data
The purpose of default and customised price-quality regulation is to provide a low-cost way of setting price-quality paths for suppliers of regulated goods and services, while allowing for the unique circumstances of individual suppliers. The Commission's focus is on achieving a balance between the business needs of suppliers and the rights of consumers.
Previously, the Commission has used a combination of historical information and projections to reset DPPs for EDBs. However, some EDBs have raised concerns that the Commission’s use of historical data for forecasting fails to take account of the increasing costs required to decarbonise the economy, putting New Zealand’s ability to meet its climate change targets at risk. Those EDBs have recently signalled large increases in expenditure, which will be reflected in their Asset Management Plans (AMPs) for 2024 and later years. AMP forecast expenditure plays an important role in setting DPP allowances.
Constricted timeframes to prepare 2024 expenditure information
The Commission is planning to use 2023 AMP information for the draft DPP decision and updated 2024 AMP information for the final decision, following the same process as for the previous DPP reset. However, the Commission is concerned that it will not have time to incorporate updated 2024 AMP information in the final decision if there are substantial increases in expenditure from 2023 to 2024. To ensure the draft DPP decision is based on the most up-to-date information available, the Commission intends to request early 2024 expenditure forecasting in late 2023.
The regulatory landscape for EDBs is evolving, driven by a complex mix of economic, environmental, and social considerations. EDBs who want input into the DPP process have until 23 June to make a submission. The Commission is seeking feedback on the proposed process for setting the DPP and is also seeking specific feedback on:
- The practicalities of speeding up the AMP process, including the possibility of providing unverified information early, followed by verified information. The Commission wants to know what information EDBs could provide early and when.
- Whether a shorter regulatory period would better help to manage forecasting uncertainty. The regulatory period is currently five years, but the Commission has the power to set a shorter period (four years minimum) if it considers that would better meet the purposes of the Act.
The Commission also plans to hold stakeholder workshops to discuss issues in person, including:
- A DPP knowledge-sharing session early in July 2023 for stakeholders less familiar with the DPP-setting process.
- Specific issues-based / topic workshops from October 2023 to April 2024 after the release of a DPP reset issues paper and before the draft DPP decision (expected in May 2024)
- If required, other topic-focused workshops will be held in June-October 2024 before the final DPP4 decision (which must be made by 30 November 2024).
Get in touch
If you would like to discuss any aspects of the proposed process, or assistance in making a submission, please get in touch with one of our experts.