Distribution pricing
Efficient distribution pricing helps ensure consumers pay prices that better reflect the costs they place on the electricity network. This supports a reliable and affordable electricity supply and helps encourage efficient investment and electricity use.
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2019 Distribution pricing principles
Distributors are asked to apply the 2019 Distribution pricing principles. These principles set out clear expectations for developing efficient, transparent and consumer-responsive distribution prices and are used by the Authority for our monitoring and assessments.
Under these pricing principles:
- Prices are to signal the economic costs of service provision, including by:
- being subsidy free (equal to or greater than avoidable costs, and less than or equal to standalone costs);
- reflecting the impacts of network use on economic costs;
- reflecting differences in network service provided to (or by) consumers; and
- encouraging efficient network alternatives.
- Where prices that signal economic costs would under-recover target revenues, the shortfall should be made up by prices that least distort network use.
- Prices should be responsive to the requirements and circumstances of end users by allowing negotiation to:
- reflect the economic value of services; and
- enable price/quality trade-offs.
- Development of prices should be transparent and have regard to transaction costs, consumer impacts and uptake incentives.
For background information and examples explaining the distribution pricing principles and their application, read our decision paper: More efficient distribution network pricing: principles and practice.
Applying the distribution pricing principles
The following documents explain how to apply these principles:
The following guidelines further support distributors to apply the distribution pricing principles consistently and transparently when developing, reviewing and communicating their pricing approaches.
- Charging based on time-varying distribution charges: Charging based on time-varying distribution charges
- Connection charges on distributed generators: Anonymised determination of connection charges payable under schedule 6.3 of the Code
- Guidelines for communicating price changes: Transparency of consumers’ electricity charges
Distribution pricing methodologies
The Commerce Commission requires distributors to provide information on their distribution pricing as part of its Electricity Distribution Information Disclosure Determination.
The Commerce Commission also requires each distributor to publish an annual pricing methodology on their website. This needs to describe how distribution prices are calculated, the changes in prices, and the extent to which the pricing methodology is consistent with the above distribution pricing principles.
Our work to improve distribution pricing
Our distribution pricing work focuses on improving pricing signals, supporting efficient investment and use of electricity networks, and delivering better outcomes for consumers.
We are currently focusing on improving pricing methodologies for connecting to networks. Through this multi-stage project, we are making connection pricing methodologies more efficient, transparent and consistent across distributors.
Distribution connection pricing reform
We are also reviewing the distributed generation pricing principles to support efficient distributed generation and maximise the benefits for networks and consumers.
Distributed generation pricing principles reform
For background information on our distribution pricing reform programme, see Distribution pricing
Open letters to distributors
The Government’s phase-out of low-fixed charges will be complete on 1 April 2027. Ahead of this date, we sent a letter to all distributors with guidance on how the distribution pricing principles should be applied when considering how to reset fixed charges from this date, and design tariffs for those previously on a low fixed charge tariff.
The letter sets out the Authority’s expectations that:
- consumer impact should be managed and balanced against the other distribution pricing principles
- there is no expectation of an immediate and full adjustment on 1 April 2027, but transparency is required.
In May 2024 and September 2022, we sent letters to distributors setting out our expectations for pricing reform.
The letters each focus on areas for distributors for the following pricing year and are consistent with our Distribution Pricing Practice Note.
Monitoring and evaluation
We developed a scorecard approach to monitor and comment on distributors’ pricing structures and pricing reform. The scorecards are a basis for regular, constructive engagement with distributors on their price reform aspirations, efforts and roadblocks.
The aim is to highlight good practice, identify weaknesses and gaps, and to suggest opportunities for improvement. We review distributors’ assessments of the:
- current circumstances
- efficiency of price structures
- strategies and implementation of distribution pricing reform
- management of consumer impacts arising from changes to pricing.
Distribution pricing scorecards
From 2020 to 2024, we used distribution pricing scorecards to assess and evaluate distributors’ pricing plans against the 2019 Distribution pricing principles. These assessments drew on information already being disclosed by distributors to the Commerce Commission.
We updated and published scorecards for each distributor each year and discussed each scorecard with distributors to cover their progress, local context, plans and issues to resolve.
In 2023, we also published a summary of distribution pricing scorecards of pricing developments and trends across the sector.
2023 Scorecards
This year most distributors made significant improvements in both pricing methodologies and strategy roadmaps for the challenges of the future.
However, progress for some distributors is not occurring as quickly or comprehensively as we would like. We have identified room for improvement in distributors’:
- application of time-of-use (TOU) peak differentials
- pass-through of transmission charges
- demonstration of quantitative analysis linking network circumstances to peak signal strength, consistent with cost-reflective pricing
- provision of quantitative information on calculating the subsidy-free range (the range between incremental and standalone cost).
Read our information paper with our findings for distributor's scores for 2023.
2022 Scorecards
No distribution pricing scorecard assessments were completed. Instead, we wanted to give distributors time to understand and implement the guidance in our 2022 Distribution Pricing Practice Note.
2021 Scorecards
The 2021 scorecards indicate that most distributors are still not looking hard enough at their own cost drivers, nor properly considering how to design more efficient pricing. Some are making good progress, but others have made little real progress, and for many there appears to be no urgency towards reform.
Northpower, Wellington Electricity and Aurora were the distributors with the highest scorecard scores. Wellington electricity scored well (5/5) in assessment of local circumstances and their roadmap. Aurora scored well (5/5) in assessment of local circumstances, alignment with the principles and strategy. Both Northpower and Aurora scored 4/5 for their consideration of consumer impact.
Given that efficient pricing has significant benefits for consumers, and will enable an efficient transition to a low-emissions economy, we want to see faster reform.
View our summary of findings - Distribution pricing scorecards 2021
2020 Scorecards
The 2020 scorecards show how well each distributor is progressing towards making its pricing more efficient.
The scorecards assess distributors’ published pricing methodology and roadmaps at a point in time.
View our summary of findings - Distribution pricing scorecards 2020
We paused the scorecards in 2024 to focus on the targeted reform of connection pricing. The new rules developed as part of this project include new transparency requirements, standardised connection charge information, and a targeted intervention framework that enables the Authority to monitor and assess distributors' connection pricing methodologies.