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Power companies 'furiously agree' new ways to charge needed

Power companies 'furiously agree' on more customer-friendly charging

By Fiona Rotherham

March 2 (BusinessDesk) - The electricity sector is in “furious agreement” that new, consumer-friendly ways to charge for power are necessary and possible, thanks to new technology, but the different parts of the industry can't agree on how, why and what to charge, says the Commerce Commission’s Nick Russ.

Russ told the Downstream Energy conference in Auckland today that the industry agreed current pricing structures are no longer suitable and that something should be done.

“But there’s a bit of a niggle going on” between the regional network monopolies that own power lines feeding electricity to homes and businesses and nationally competing generator-retailers over the details of a pricing structure to reflect the constantly fluctuating demand for and price of power, he said.

The need for change is being forced by new technologies such as solar power, electric vehicles, battery storage, smart metering, and internet-connected household appliances that make it easier for consumers to manage when and how they use electricity. The technologies also allow consumers to choose whether to get electricity from their local distribution network or generate it themselves.

The Electricity Authority has estimated residential electricity bills could rise by 10 percent in the next 10 years if there is no change. It also warned last year that, without change, billions of dollars of investment could be wasted on solar electricity generation as the current pricing structure over-incentivises investment in solar.

Currently the country’s 29 distribution networks, which own the power lines used to transfer electricity from the national grid to homes and businesses, get most of their revenue from charging consumers on how much electricity they use, rather than when they use it or how much capacity is provided.

Meridian Energy strategy and performance manager Gillian Blythe said consumer submissions on proposed changes to the pricing structures showed the current system wasn’t working as it should and that it also wasn’t well understood.

Regulations governing lower fixed network charges for customers using less than average amounts of electricity also needed to be addressed, she said.

Greg Skelton, chief executive of lines company Wellington Electricity, said cost effective pricing would promote efficient outcomes for New Zealand customers but a transition would be needed to allow consumers to respond and the retailers to adjust their offers and promotions.

“This has to be supported by all market participants,” he said.

“Pricing arrangements are the fundamental problem in front of us,” said Transpower regulatory affairs and pricing manager Jeremy Cain.

The industry faced some “painful times” and political intervention if it couldn't compromise and discard "parochial ways and baggage".

“The concepts that have applied for the past 100 years in this sector won’t necessarily apply in the future,” he said.

Electricity Authority chairman Brent Layton said evolving technologies have the potential to enable consumers to more easily manage and control when they use electricity and significantly alter the level and timing of consumer demand for electricity as well as the share they seek through their distributor.

“It increases the degree to which distribution, transmission and energy charges can be service-based and cost-reflective and promote efficient use and investment, “ Layton said.

He said the authority’s preliminary view from its discussion paper on the potential impact of new technology and the implications for efficient distribution pricing was that distributors and the major generator/retailers have strong incentives to improve the efficiency of distribution pricing in the face of potential technology change.

The authority believes distributors have the legal capacity to do so reasonably effectively, despite regulations that require them to offer residential consumers a low-fixed, high variable charge option, he said.

Also under review by the authority is whether the wholesale spot market should move to being settled on real time prices rather than being finalised two or more days later to help price responsive demand with new technology increasing opportunities in this area.


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