Distribution prices must be based on a well defined, clearly explained and published methodology.
Independent review of distribution pricing
Castalia independently reviewed the pricing methodologies published by the 29 distributors in New Zealand between July and September 2013.
The review assessed the alignment of the 29 distributors’ pricing methodologies with the information disclosure guidelines and voluntary pricing principles, with the objectives of:
- carrying out a stocktake of what pricing methodologies are being used
- helping distributors understand regulatory expectations
- exploring whether regulatory arrangements can be improved.
The pricing methodology should demonstrate:
- how the methodology links to our pricing principles, and any non-compliance with those principles
- the rationale for consumer groupings and the method for determining the allocation of consumers to the consumer groupings
- quantification of key components of costs and revenues
- an explanation of the cost allocation methodology and the rationale for the allocation to each consumer grouping
- an explanation of the derivation of the tariffs to be charged to each consumer group and the rationale for the tariff design
- pricing arrangements that will be used to share the value of any deferral of investment in distribution and transmission assets, with the investors in alternatives such as distributed generation or load management, where alternatives are practicable and where network economics warrant.
Voluntary pricing principles and information disclosure guidelines
These guidelines contain the voluntary pricing principles relating to efficiency, price stability and certainty, and impacts on retailer transaction costs, along with guidelines for information disclosure.