Sector needs more responsive regulatory regime, ENA says
ENA has told the Commerce Commission that responding to climate change is not optional for electricity lines companies and that the sector needs a more responsive regulatory regime to deal with the challenges of electrification.
ENA was submitting on the Commerce Commission’s input methodologies (IMs) review, which happens roughly every seven years. The input methodologies set the rules and processes for how airport, gas pipeline and electricity lines services will be regulated.
A lot has changed since the last IM review in 2016. In particular, the pace, scale and order of electrification of process heat and transport have already created uncertainty about how much investment is required by lines companies to enable decarbonisation. This is only going to intensify over the next seven years as climate-related investment ramps up and electricity demand increases.
As it stands, the Commission’s draft framework notes that it "may" have regard to the Climate Change Response Act 2002 (CCRA) in its decision-making. ENA's view is that it should explicitly recognise that addressing climate change is in the long-term interest of consumers and change "may" to "must".
The Commission uses historical costs for establishing how much operating and capital expenditure lines companies can recover from their customers. This works well in a predictable environment, which we no longer have. In ENA’s submission, it recommended the Commission instead adopt a forward-looking approach to establishing expenditure allowances and introduce a greater range of tools, such as contingency allowances, so that lines companies have the flexibility to invest in their networks when unforeseen costs arise. It is not easy to know exactly when heavy energy users will switch from coal boilers to electric, or how quickly communities will embrace EVs.
Without more flexibility in the regime there is a risk that multiple lines companies will be asking the Commission for customised price paths to let them proceed with new projects to manage electricity demand growth. Such an approach would be costly and time-consuming for all parties involved and could overwhelm the Commission's capacity to respond.
