FAQs: New rules for connection pricing methodologies

1. A user should cover the costs they incur, so shouldn’t a new connection pay a 100% capital contribution and system growth charge?

Connection charges are part of the cost of obtaining distribution services, with new connections also paying monthly charges once connected.

On most distribution networks, new connections have historically paid less than 100% of their direct cost up-front, with the remainder of their connection costs rolled into the distributor’s cost base and recovered across all users through monthly charges. As long as connection charges are not too low, connection applicants are still paying their full connection cost over time, and contributing to shared costs.

If new connections have to pay a bigger share of costs up front and still pay the same monthly charges as existing customers, then they pay more in total than existing users. These higher costs will flow through to other activities, such as building new housing, expanding businesses, and electrifying transport and heating.

If higher costs stop or delay new connections, then there are fewer users to share the largely fixed and shared costs of the network – meaning higher costs for existing users.

More balanced pricing still ensures connection growth pays for its growth costs, while not making connection growth also pay a disproportionate share of other costs.

See section 5 of our Distribution connection pricing consultation paper for more details.

2. If an existing connection agreement is a long-term contract, does it need to be reconsidered under the new Code requirements?

The new requirements do not apply retrospectively to existing connection agreements. Part 6B of the Code does not apply to any connection application received by a distributor prior to 1 April 2026 (under clause 6B.2(1)(a)).

3. If a quote is provided before the new rules for connection pricing methodologies come into effect, but the quote is updated once the new rules are in effect, which rules apply?

The new rules apply to connection applications received on or after 1 April 2026. The new rules would not apply to an updated quote for an connection application received prior to 1 April 2026.

1. How should a distributor define the minimum scheme for pricing connections?

The minimum scheme should be defined with reference to the distributor’s connection and operating standards, which should reflect the distributor’s asset management policies and practices.

2. How should the minimum scheme be determined for a posted connection charge?

There are three key steps for distributors establishing a posted connection charge:

• determine the eligibility criteria – eg, single-phase residential connections within a certain distance of an existing overhead pole.
• consider the minimum scheme for a representative connection of that type (ie, the ‘notional’ minimum scheme). As with any minimum scheme, this is done with reference to the distributor’s connection and operation standards, which should reflect their asset management policies and practices.
• apply their connection pricing methodology to the notional minimum scheme to determine the level of the posted charge. The level of the posted charge should be published by the distributor, along with eligibility criteria and a standardised charge reconciliation.

Eligible connections pay the posted charge, without a need to develop quotes for each connection.

Setting posted connection charges is optional for distributors. They are most useful for higher-volume, smaller-value connections, such as ‘standard’ residential or small business connections.

See Example 1A of this guidance document.

1. What happens to rebates to a pioneer if they sell their asset?

A distributor can decide whether pioneer status applies to an applicant, the connection itself, or some other approach. A distributor is required to set out in their pioneer scheme policy whether, and in what circumstances, the status of a first pioneer or subsequent pioneer may transfer to a a new occupant or owner of that connection.

Note, the pioneer scheme requirements were clarified following the technical consultation on the Code drafting. The amendment clarified that distributors have discretion in their pioneer scheme policy to specify how eligibility is managed.

2. Why does the pioneer scheme not apply to connections that are priced using posted connection charges?

Posted connection charges are designed to be used for high-volume, low-value connections with relatively consistent costs. By definition, posted charges are consistent from one applicant to the next, so there is no position-in-queue dynamic to address through a pioneer scheme.

3. How is a real estate development defined?

We’ve defined real estate development in the Code to mean a development of land for the purpose of on-selling, including its development in one or more of the following ways:

(a) Subdivision

(b) the construction of commercial or industrial premises (or both)

(c) the construction of multiple new residential premises.

Note, the definition was refined following the technical consultation on the Code drafting.

4. Pioneer schemes don’t apply when the connection is for the construction of commercial or industrial premises. Does this mean pioneer schemes don’t apply to any commercial or industrial connections?

A real estate development is a development of land for the purpose of on-selling. Therefore, a distributor isn’t required to have a pioneer scheme to a commercial or industrial connection if the purpose is to on-sell the premises. If the purpose of the development is not to on-sell the premises, then the pioneer scheme requirements apply.

Note, the definition of a real estate development was refined following the technical consultation on the Code drafting.

5. Does the definition of real estate development capture multi premises buildings?

A multi premises building is only captured if the purpose of the development is to on-sell the premises.

Note, the definition of a real estate development was refined following technical consultation on the Code drafting.

6. Are embedded networks excluded from pioneer schemes?

Embedded network owners are not required to operate pioneer schemes.

An embedded network could be required to make pioneer scheme contributions when connecting to the primary network and could receive rebates as a pioneer in one of the primary network's pioneer schemes.

7. How does a pioneer scheme fee work and who pays it?

A pioneer scheme fee is deducted from a pioneer scheme contribution before rebates are paid to the pioneers. The pioneer scheme fee must only cover the reasonable costs of administering the pioneer scheme.

8. Can a first pioneer only opt out of applying a pioneer scheme at the time of the pioneering connection works, or can they opt out later?

The first pioneer can only opt out at the time of the pioneering connection works. Once a pioneer scheme is in place, it is not possible for the first pioneer (or subsequent pioneers) to opt out of the pioneer scheme. However, under subclause 6B.7(1)(a) of the Code, the pioneer scheme can be ended early if each pioneer to the pioneer scheme and the distributor agree in writing.

9. Is it only pioneers who are still connected to the relevant pioneering connection works that qualify for rebates?

Clause 6B.8 (which relates to determining connection charges, contributions and rebates for pioneer schemes) was amended following the technical consultation to ensure that the Code reflects the policy set out in the decision paper.

The amendment makes it clear that pioneers do not still need to be connected to the pioneer scheme to receive rebates. In addition, a new subclause (6B.8(6)) requires that the distributor determines whether, and in what circumstances, the status of a pioneer may transfer to a different person or persons (eg, a successor asset owner). The distributor will need to include this in their pioneer scheme policy.

10. How long is a distributor required to search for a pioneer to pay them a rebate?

While the Code does not directly specify this, distributors should put in place practices that prevent the loss of contact with pioneers as much as reasonably possible. In addition, a distributor can specify in their pioneer scheme policy that, if they are unable to find a pioneer (after a reasonable effort to find them), the status of the pioneer can transfer to someone else (eg, the successor asset owner) under subclause 6B.8(6) of the Code. This subclause requires the distributor to determine whether, and in what circumstances, the status of a pioneer may transfer to a different person or persons.

1. Why is the Authority using the mid-point vanilla weighted average cost of capital (WACC) in the incremental revenue calculation?

This approach is consistent with the input methodologies approach for dealing with the time-value of cashflows.

2. Why is the WACC adjusted for inflation?

Inflation is excluded from WACC and cashflows for consistency – ie, because cashflows are expressed in real terms without inflation added.

3. How is the WACC adjusted for inflation?

The adjustment to remove inflation is required to be consistent with inflation projections for the year ahead from the most recent Monetary Policy Statement published by the Reserve Bank of New Zealand. Our worked examples of distribution connection pricing guidance walks through the adjustment.

4. When can localised historical cost recovery be applied?

The Code accommodates localised historical cost recovery schemes, but doesn’t specify how they should operate. Our worked examples of distribution connection pricing guidance includes an illustrative example

5. How should recoverable costs be forecast in determining incremental revenue?

The estimate of incremental revenue is the sum of the incremental distribution revenue estimate and the incremental transmission revenue estimate. These are estimates of the revenue from lines services (excluding connection charges and connection fees) that the distributor receives over the connection’s revenue life.

‘Year one’ revenue from a connection may be estimated using a top-down approach (based on consumer group revenue) or a bottom-up approach (based on tariffs and tariff metrics). ‘Year-one’ revenue can then be adjusted for forecast changes in overall revenue paths (distribution and transmission), tariff structures, and connection demand.

Our worked examples of distribution connection pricing guidance shows how incremental revenue is estimated.

6. Does a distributor need to reconcile all applications in a year that were priced or just those applications that proceed?

A distributor should reconcile all quotes in the same pricing year that the quotes are issued.

7. If a distributor charges more than incremental cost for a connection, how does this show up in the reconciliation formula?

If a distributor charges more than incremental cost for a connection this would be shown by the connection charge being higher than the incremental cost. This would lead to the network contribution being higher than the incremental revenue for that connection.

8. Please explain what is meant by an active cost-recovery scheme?

This should be an “active localised historical cost recovery”. A localised historical cost recovery is defined in the Code.

9. How do revenue adjustment and tariff adjustment factors work?

We’ve provided guidance on how to apply revenue adjustment and tariff adjustment factors in example 1A of the distribution connection pricing guidance document.

A revenue adjustment factor is used to adjust the revenue forecast for each year to reflect movements in the distributor’s overall target revenue.

A tariff adjustment factor is used if the distributor is intending to rebalance or restructure its tariffs in a way that may further affect the future revenue from a particular connection.

10. Do the new connection pricing methodologies rules prevent having a minimum capital contribution to ensure the connecting party meets at least some of the asset stranding?

The new rules do not set a specific level for connection charges and distributors are not required to price at incremental cost. Distributors retain discretion in how they set connection charges. The new rules also allow distributors to use posted connection charges and standard rates.

1. What future information disclosures is the Authority expecting to require?

The relevant teams in the Authority are working to establish the reporting processes under clause 6B.10(3). This includes outlining the information that distributors are required to provide to the Authority under this clause, the form of the reporting (eg, a standard reporting template for tabular data), frequency of reporting, and the manner in which distributors must provide the information (eg, Secure File Transfer Protocol (SFTP).

Clause 6B.11 outlines what must be assessed and included in a reconciliation. Distributors will need to keep a record [JH3] of assumptions that apply specifically to individual connections. If a distributor uses a posted connection charge or standard rates, they will need to track the number of connections on those rates.

Note that the reconciliation requirements are framed around quotes, so when setting up systems a distributor should consider linking quotes and jobs together (ie, so if the same application generates multiple quotes the distributor has a record of it). Likewise, it would be useful to record events that happen after a quote such as ‘quote accepted’, ‘quote abandoned’, ‘payment received’ and ‘connection commissioned’.

2. Will the information disclosure requirements include specific disclosures for any adjustments made to the weighted average cost capital (WACC) charge that is used for the connection agreement?

The reconciliation calculations must use the specified WACC value for adjusting the timing of cashflows to a common base.

The fast-track connection charging requirements do not fully prescribe how a distributor must determine connection charges. However charges are determined, the outcome is recorded as the value of the connection charge.

A distributor’s methodology may involve using a different discount rate to that used in the charge reconciliation. This should be recorded in the distributor’s connection pricing methodology.

1. Is a distributor required to do a reconciliation for a connection where all connection assets are installed by a network approved contractor and then vested with the distributor?

Yes, the distributor is required to do a reconciliation for connections where connection assets are vested assets. The reconciliation will, at a minimum, include information about network capacity cost (NCC) and incremental revenue (IR).

2. Do the guidance materials provide direction on how to value and treat vested asset elements of the scheme?

The guidance material does not currently address valuation and treatment of vested assets.

Clause 6B.11(7) requires a distributor to treat in-kind contributions “…consistently as between CC and IC (either both zero or both the same estimated value).” Vested assets are a type of in-kind contribution (ie, instead of paying cash the customer builds an asset and hands it over).

Examples of how a distributor could choose to apply this could include:

• where a distributor records vested connection assets in their regulatory asset base at a non-zero value, they may choose to use that same value as part of the connection charge and the extension cost
• vested assets costs could be estimated based on the distributor’s own cost book and recorded at the estimated value in both terms
• vested assets could be recorded at zero cost in both terms.

In all cases, the treatment produces the same:

• assessed network cost contribution (NC)
• ratio between network cost and incremental revenue (NC/IR).

3. Do you expect a distributor to rebate a connecting party a part of the bill they paid to the network approved contractor for a vested asset?

The guidance material does not currently address treatment of vested assets. Distributors retain overall discretion of their policies on vested assets, including whether they rebate a connecting party for any vested asset costs.

1. How are hybrid and BESS connections dealt with under the new rules for connection pricing methodologies?

The distribution connection pricing guidance document includes examples (3c and 3d) that illustrate how the new rules would work for connections that have both load and generation.

2. Part 6A of the Code has an avoided cost of distribution (ACOD) provision for distributed generation – does Part 6B have a similar provision for a load connection with battery storage that only reduces demand at the connection?

If a distributor chooses to recover upstream capacity costs via connection charges, they must comply with the capacity costing requirements in clause 6B.5.

This involves the distributor determining capacity demand assumptions for the connection (and for each network tier). If a connection has battery storage, then the distributor may consider this as a reason to apply lower capacity demand assumptions. This would (typically) flow through to a lower connection charge.

However, battery storage will not always justify lower capacity demand assumptions. A distributor is required to have “reasonable regard to relevant information” when determining capacity demand assumptions.