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23/07/2025
New connection pricing methodologies for distributors connecting load to their networks
The Electricity Authority (Authority) released its decision about the new connection pricing methodologies distributors will need to comply with when they connect load to their networks.[1]
Last year the Authority consulted on adding five new “fast-track” connection pricing methodologies to the Electricity Industry Participation Code (Code).[2] The Authority decided to go forward with four of them. The Authority reserved judgment on the fifth one; the proposed controversial capital contribution reliance limit methodology. Even without that, distributors will be busy between now and April 2026 getting ready for the new rules.
The Authority touts the new connection pricing methodologies, together with reforms relating to connection processes for load and distributed generation,[3] as unlocking network connection barriers to support electrification.
The new connection pricing methodologies will apply to all distributors, whether or not regulated under Part 4 of the Commerce Act 1986. Three of the new pricing methodologies take effect from 1 April 2026. The fourth one takes effect from 1 April 2027.
The new connection pricing methodologies
The new connection pricing methodologies are summarised in the table below. The methodologies will be in a new Part 6B of the Code.
The new connection pricing methodologies apply to load (not distributed generation)[4] connections to distribution networks. For now, the methodologies to not apply to secondary networks (embedded networks and other networks not connected to the grid).
Connections under large connection contracts, as defined in the EDB's IMs,[5] are not subject to the connection enhancement cost allocation, capacity costing or pioneer scheme methodologies. Large connection contracts are subject to the connection charge reconciliation methodology only.
The jurisdiction of the Rulings Panel is expanded to cover disputes about how the new connection pricing methodologies are applied by distributors.
| Connection Pricing Methodology | Our thoughts |
|---|---|
| Connection enhancement cost allocation This methodology applies to load connection applications received by distributors from 1 April 2026. Distributors must offer connection applicants the “relevant minimum scheme”, being the least-cost technically acceptable solution for connecting the applicant. The relevant minimum scheme may be a flexible connection if the applicant requests it and the distributor can reasonably provide it. The cost of any enhancement above the relevant minimum scheme must be met by the party requiring the enhancement. The parties may agree these requirements do not apply. |
This methodology may encourage greater use of standard rates for some connection works so that distributors can mitigate the potential extra effort involved in double-quoting for connections. An undesirable side-effect may be “stand-off” situations, where each party is trying to avoid being the one requiring an enhancement, and therefore paying for it, even though both parties may want it. |
| Capacity costing This methodology applies to load connection applications received by distributors from 1 April 2027. Distributors must use posted capacity rates and associated capacity increments to calculate any (upstream) network capacity cost component of a connection charge. There are exceptions for connections requiring large capacity increments and connections where the estimated actual cost of the capacity increment is significantly above or below the capacity rate. In those cases the distributor can use the estimated network capacity cost instead of posted capacity rates to calculate the connection charge. There is an exception for network capacity upgrades that are “extension-like” (such as capacity upgrades for a connection in a remote rural location). Extension-like capacity upgrades are treated as network extensions, to which the connection enhancement cost allocation methodology applies. Posted capacity rates and their associated capacity increments must be determined and published on a rolling annual basis for the current disclosure year and the four disclosure years after that. After the first disclosure year to which this methodology applies (1 April 2027 to 31 March 2028), the published posted capacity rates and their associated capacity increments are binding for the current disclosure year and the disclosure year after that - they cannot be changed except to correct errors. |
Nothing particularly specific is being added to the Code about how posted capacity rates are to be determined. The rates just need to be “the estimated average cost per capacity unit” for the relevant network tier and zone. Distributors therefore have some discretion as to how they calculate their rates, which, in our view, need not be on a strict historical cost basis. The Authority has not defined in the Code what an “error” is (which is relevant to a distributor’s freedom to change its published rates). Although probably not intended by the Authority, arguably an underestimation of average cost per capacity unit would be an “error” entitling the distributor to change its published rates. Despite the implementation of this methodology being delayed until 1 April 2027, the connection charge reconciliation methodology (see below) will require distributors to have determined posted capacity rates by 1 April 2026. This is because the network capacity cost, calculated from the posted capacity rates, is an input to the connection charge reconciliation (as a component of incremental cost). |
| Pioneer scheme This methodology applies to the calculation of connection charges from 1 April 2026. In its simplest form, a pioneer scheme is a scheme under which a customer (the second mover) who connects to a network extension that another customer (the first mover) has paid for must pay a contribution to the capital cost incurred by the first mover to establish the network extension. The purpose of a pioneer scheme is to remove, or at least mitigate, a disincentive for an applicant to be the first mover. Distributors must establish pioneer scheme policies by 1 April 2026, setting out how the distributor will apply and administer pioneer schemes in its network and calculate pioneer scheme contributions, subject to certain requirements in the Code. Distributors must comply with their pioneer scheme policies. Network extensions that do not cost more than $50,000 are exempted from pioneer schemes by the Code, as are network extensions for real estate developments (including residential subdivisions and business parks). If a pioneer scheme contribution is less than $1,000 (in December 2025 terms adjusted for CPI movements) it must not be collected from the second mover or rebated to the first mover. |
The transmission pricing methodology (TPM) already contains pioneer scheme provisions for transmission connection assets, known as the first mover disadvantage mechanism. The new pioneer scheme methodology for distribution is similar to the first mover disadvantage mechanism in the TPM. A significant difference is that the pioneer scheme methodology for distribution is operationalised through distributor pioneer scheme policies rather than directly through the Code. This provides some flexibility for distributors to design a pioneer scheme methodology that suits their circumstances and preferences. One area where there appears to be flexibility is the choice of network extensions to which a distributor’s pioneer scheme policy applies. The Code does not say the policy must apply pioneer schemes to all network extensions above the $50,000 threshold or to any particular subset of those network extensions. In our view it would be sensible for a distributor to state in its policy that pioneer schemes do not apply to network extensions that existed or were already contracted before the date of the policy. That makes sense because the first mover for an existing or already contracted network extension clearly was not disincentivised by first mover disadvantage. |
| Connection charge reconciliation This methodology applies to load connection applications received by distributors from 1 April 2026. Distributors must provide applicants with connection charge reconciliations on request or when they provide quotes for connection charges to applicants. The Authority may require distributors to disclose connection charge reconciliations to the Authority, along with information about how the reconciliations were calculated. The purpose of a connection charge reconciliation is to make transparent to the applicant (and, potentially, the Authority) the difference between the distributor’s net incremental cost of the connection and the connection charge the applicant is required to pay for (that difference being the “network cost component”). |
There is no right or wrong answer to a connection charge reconciliation in the Code. There is no upper (or lower) limit on the network cost component or any ability for the applicant or Authority to force the distributor to reset the connection charge. This methodology is for transparency only, although it could well equip the applicant for further negotiation of the connection charge or provide an evidence base for further, more prescriptive, regulation of connection charges by the Authority. While the purpose of this methodology is easy to state, we think the application of it will not be straightforward for many connections. Distributors will be expected to have some “science” behind their estimates of incremental cost and incremental revenue, and there are some detailed calculation methodologies in the new rules that distributors will need to comply with. |
Next steps
The Authority is now seeking submissions on the proposed Code drafting for the new connection pricing methodologies. Interested parties have until 1 August to submit. This is a technical Code drafting consultation only. The Authority is not inviting further submission on the merits of the methodologies.
The Authority says it will consult further on the proposed capital contribution reliance limit methodology later in 2025.
Contact us
To learn more about the new methodologies, or for assistance with preparing a submission, please contact one of our experts listed below.
[4] The Code does not make it clear whether “load” includes battery load. It appears not because the definition of “load” for the purposes of Part 6B of the Code uses the word “consumes”. Batteries store electrical energy rather than consume it (except as to losses).
[5] Electricity Distribution Services Input Methodologies Determination 2012 (as amended).
