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Pricing Methodology Electricity Distribution Network Pricing Methodology Electricity Distribution Network Pursuant to the Electricity Distribution Information Disclosure Determination 2012. Effective from 1st April 2020 EA Networks Electricity Distribution Network Pricing Methodology 2020-21 Contents Introduction ........................................................................................................................... 4 Summary of current revenue and pricing............................................................................... 5 Overview of pricing methodology .......................................................................................... 6 Pricing considerations and objectives ................................................................................. 10 Regulatory context........................................................................................................... 10 Network context ............................................................................................................... 10 Customer context ............................................................................................................ 13 Consumer consultation .................................................................................................... 13 Feedback ........................................................................................................................ 13 Pricing methodology ........................................................................................................... 14 Background ..................................................................................................................... 14 What our pricing covers ................................................................................................... 14 Pricing strategy – we plan to evolve our pricing ............................................................... 15 Our approach to developing prices .................................................................................. 17 Allocate costs across customer load groups .................................................................... 20 More detail on connection segmentation approach ............................................................. 23 General customer load group .......................................................................................... 24 Irrigation customer load group ......................................................................................... 26 Industrial customer load group ........................................................................................ 28 Large user customer load group ...................................................................................... 29 Large generation customer load group ............................................................................ 30 Other information ................................................................................................................ 32 APPENDIX A – Alignment with Electricity Authority Pricing Principles ................................ 34 APPENDIX B – Alignment with Commerce Commission Information Disclosure ................. 38 APPENDIX C – Pricing Schedule 2020-21 .......................................................................... 45 APPENDIX D – Target Revenue allocation detail for 2020-21 ............................................. 46 APPENDIX E - Directors approval ....................................................................................... 48 Page 2 of 48 EA Networks Electricity Distribution Network Pricing Methodology 2020-21 Definitions and common acronyms The hardware, equipment or plant that is part of our electricity Assets distribution network. ACOT Avoided Cost of Transmission. Electricity supply for which we temporarily cease supply when Controlled Energy required, typically during periods of high load. It is most commonly water heating load. Customer An end user who is connected to the electricity distribution network. Customer Load The customer segments that have similar electricity requirements Groups and that share similar pricing methodologies. Grid Exit Point. This is the point where EA Networks’ electricity GXP distribution network connects to Transpower’s transmission network. Installation Control Point. This is the isolation point where a ICP customer connects to the distribution network and where the retailers metering is located. kW Kilowatt. The measure of electrical capacity. Kilowatt-hour. The measure of electricity consumption by which kWh retail electricity consumption is measured. Kilovolt Ampere. A unit of measure for how much power is being kVA provided through a business or home’s electrical circuits or technology. Retailer The entity that charges customers for their electricity usage. Regional Coincident Peak Demand. This affects the way that RCPD Transpower allocates interconnection cost. The forecasted annual revenue we expect to earn as determined Target Revenue under the Default Price Path rules and guidelines. Transmission costs are comprised of charges directly from Transmission Transpower, Avoidable Cost of Transmission paid to Generators costs (now ceased), and recoverable costs including regulatory levies and local authority rates. Weighted Average Cost of Capital. This is the measure of the return WACC an Electricity Distribution company may achieve under the Default Price Path regulations set by the Commerce Commission. Page 3 of 48 EA Networks Electricity Distribution Network Pricing Methodology 2020-21 Introduction Purpose The purpose of this document is to detail how EA Networks develops the prices it charges for connection to, and use of, the network. About EA Networks EA Networks is the trading name of Electricity Ashburton Limited. We own and operate the electricity distribution network located in Mid Canterbury. We are a consumer owned cooperative with every connected customer entitled to own shares in the company. Our network delivers electricity to households and businesses across an area of about 3,500km², between the Rangitata River in the south, the Rakaia River in the north and the foothills of the Southern Alps in the west. Three distribution lines run into up-river gorges through the foothills. From a network engineering perspective there are two general network designs; rural and urban. The rural distribution network configuration is predominantly long radial overhead feeders with some interconnection to adjacent feeders and substations. The urban 11kV distribution network is based upon a similar principle to the rural arrangement, except the network is largely underground cable, the interconnections are more frequent, and the overall feeder lengths are significantly shorter. There are four hydro generating stations embedded in the network. Barrhill is 0.5MW, Cleardale is a 1MW station, Montalto is a 1.6MW station and Highbank is a 26MW station. Page 4 of 48 EA Networks Electricity Distribution Network Pricing Methodology 2020-21 Summary of current revenue and pricing We have reviewed our pricing against the Commerce Commission’s (Commission) Default Price Path (DPP) requirements. The pricing approach is broadly in-line with previous years. On average, prices will reduce in 2020/21 from 2019/20 due to a reduction in Target Revenue allowed under the DPP for 2020/21 of 14.1% from $53.9 million to $46.4 million. The main drivers of this reduction in Target Revenue are: • Distribution costs reduce by about $3.6 million, with approximately $3.2 million of this reduction due to the Commission’s DPP decision reducing allowable returns from 7.19% to 4.57%. • Recoverable & Pass-through costs reduce by about $3.8 million, with $3.6 million of this reduction due to a net reduction in transmission costs (transmission charges from Transpower). o transmission interconnections costs reduce from $14.7 million to $6.3 million for 2020/21 as a result of Upper South Island coincident demand (RCPD) shifting to a predominant winter peaking scenario. o transmission costs increase because we elected to repay $5.2 million of Transpower New Investment Contracts. The repayment increases recoverable costs in 2020/21, but provides longer-term benefits from lower borrowing costs and more stable pricing in future periods. (This increase is less than the reduction, meaning a net reduction in transmission costs.) 2020-21 2019-20 Difference Distribution Revenue $000 $32,975 $36,551 ($3,576) Recoverable & Pass-through Costs Rates and Levies $409 $434 ($ 25) Transpower $13,058 $16,690 ($ 3,632) ACOT $ - $179 ($ 179) Total recoverable costs $13,467 $ 17,303 ($ 3,836) Target Revenue $46,442 $53,854 ($7,412) The Target Revenue for 2020/21 has resulted in the following average changes to prices by customer load group as follows: Customer Load Group Price change General -14.7% Irrigation -12.7% Industrial -20.8% Large Users -12.3% Generation -10.2% Target revenue does not include forecast revenue from new connections. We estimate new connection revenue for 2020/21 of about $220,000. Including forecast new connection Page 5 of 48 EA Networks Electricity Distribution Network Pricing Methodology 2020-21 revenue, Total Forecast Revenue for 2020/21 is $46.6 million. We do not include new connection revenue in the Target Revenue because it is recovered directly from customers with new connections, not through our standard prices. Overview of pricing methodology EA Networks is an electricity distribution business (EDB). Our costs are largely fixed as we build and maintain long-life
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