DPP4 and Consumer Care Guidelines
Welcome to our latest edition of Between the Lines, Tenco's publication, highlighting our capability, people, and ideas. This edition discusses the recent Tiwai Point announcement, Default Price-Quality Paths, and impending changes to the Consumer Care Guidelines. We also get to know Geoff Gale, the new Tenco and Axos Systems Group Chief Operating Officer.
New Zealand Electricity - Market Update
Tiwai Point is home to New Zealand’s only aluminium smelter, located across the harbour from Bluff in Southland. Each year, the smelter produces more than 330,000 tonnes of the world’s purest aluminium using electricity from renewable sources. Since its opening in 1971, the Tiwai Point smelter, operated by New Zealand Aluminium Smelters (NZAS), has been a significant contributor to the region's economy.
Meridian Energy, Contact Energy, and Mercury NZ have signed 20-year electricity supply agreements with NZAS, ensuring the survival of the Tiwai Point aluminium smelter, providing certainty to employees and the local community, and contributing to New Zealand's low-carbon future. An agreement was reached to provide the smelter with the 572 megawatts (MW) required to continue manufacturing high-purity aluminium for global export and domestic supply. The smelter's future has been uncertain for years, with the current contract expiring at the end of this year.
The new agreements require the smelter to cut power consumption during peak demand periods and make up to 185 MW of electricity available to the national grid in times of severe shortage when supply is limited. In essence, Tiwai has become New Zealand's largest storage battery, helping to balance the country's energy needs and keep the lights on. This breakthrough benefits New Zealand's industrial sector and highlights the importance of sustainable energy methods.
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Current Market Commentary
The Electricity Authority oversees and regulates New Zealand's electricity market. The electricity futures market enables buyers to purchase a forward contract. This contract protects buyers against unpredictable spot prices by ensuring that their electricity prices are fixed for a set period. Forward prices represent anticipated future electricity demand and generation costs. Market buyers and sellers determine these prices and reflect the consensus on future values. The electricity futures market reflects where market players expect the spot market to go in the future, offering a valuable proxy for the direction of retail contracts.
The arrangement with the Tiwai aluminium smelter mentioned above gives Meridian Energy and others the confidence to move forward with the country's renewable generation construction. With the uncertainty removed, investment decisions can now be made with confidence, allowing renewable generation to progress more quickly. Forward prices have trended downwards since the Tiwai contract was announced, even though national hydro storage has fallen about 25 per cent the past month and was about 27 per cent below average for this time of year on the 5th of June, according to NZX Energy data. In isolation, the Tiwai statement should calm the market, and it will be interesting to see what happens in the following weeks and months.
Default Price-Quality Paths
In late May, the Commerce Commission released its next default price-quality path (DPP), which governs the maximum revenue and quality standards for most energy distribution businesses (EDBs) and Transpower. This DPP provides fair pricing while preserving service quality and investment within their networks.
Whilst these numbers are estimates only and subject to consultation and finalisation until November 2024, the current draft indicates that, on average, household electricity bills will increase by about $15 per month ($180 annually) from 1 April 2025 to pay for higher distribution and transmission costs.
The average increase in household electricity bills will be different depending on where you live. Some regions will see average increases of around $10, while others will see average increases of $20 per month. For Commercial Consumers, the increase will be larger per month.
There are three key reasons for the upcoming estimated bill increases for the distribution and transmission component of electricity bills:
High inflation – Recent high inflation has led to significant increases in electricity line companies’ costs.
Interest rate increases — Similar to a fixed-term mortgage, interest rates are fixed for five years under current regulations. Interest rates are much higher now than when revenue limits were last set in 2019.
Higher levels of investment – Transpower and local lines companies plan to spend more than they have previously to maintain the network and support growth. This is because assets built in the 1960s and 1970s need replacing, different resilience investments need to be considered in response to the increasing frequency of extreme weather such as Cyclone Gabrielle, and increased demand needs to be supported as New Zealand’s population grows and we rely more on electricity.
The draft DPP released covers the five years from April 2025, and annual increases in subsequent years are expected as the Commerce Commission has included some smoothing to avoid price shock from 2025. These increases will impact your Embedded and Customer Networks, and we welcome the opportunity to discuss the potential impacts with you. Please reach out to us if you wish to talk about this more.
The Showgrounds, Timaru
The Showgrounds development is a cornerstone project for South Canterbury. Since late 2022, in coordination with the Redwood Group, Tenco has proudly facilitated the establishment of a private electricity network. The embedded network has been a critical driver of efficiency from the outset, and it is designed to scale seamlessly with future development stages. The network will also enable the incoming tenants to select their own electricity retailer – a vital feature of the solution.
At Tenco, we understand the unique requirements of private utility networks across New Zealand, serving a diverse array of clients. We are particularly committed to delivering tailored network solutions to our development clients that meet their unique needs.
Consumer Care Guidelines
The Consumer Care Guidelines are intended to help New Zealand's power providers provide a uniform and supportive standard of service to their customers. The New Zealand Electricity Authority developed these rules in collaboration with the sector. They address a variety of topics, including client sign-up processes, support when consumers are having problems paying their bills, efforts to protect medically dependent customers and other consumer-related issues.
While these guidelines are currently voluntary for power companies, they will soon be mandated to enhance consumer protections. A concise review process is currently occurring to address clarity, workability, and enforceability issues.
Tenco will ensure that our residential customer network providers understand their obligations and will participate in the upcoming review process on behalf of our customers.
Distributed Generation
Tenco continues to get enquiries about implementing distributed generation, primarily solar systems, into the embedded networks we manage on behalf of our clients.
Tenco offers administrative assistance to our clients and has developed an information form that your consultant can complete. We gather critical information about the intended generation to validate the planned metering design and assure compliance with electricity market standards. The form is also intended to remind your consultants about specific market needs, particularly those of the local network company.
Team Spotlight
We are delighted to announce that Geoff Gale has recently joined Tenco and Axos Systems as Group Chief Operating Officer. Geoff has considerable experience in the energy and utilities industries, and we are eager to see what he can bring to our businesses.
With prior leadership experience and responsibilities at well-known New Zealand corporations, we are thrilled that Geoff has selected the Tenco and Axos brands as we work to grow both businesses sustainably in the future.
Geoff Gale | LinkedIn
Tenco Services
Tenco is New Zealand's largest private utility network provider, serving over 200 clients across 350+ networks and leveraging two decades of technical expertise. We have invested in world-class technology and people, so you do not have to.
Tenco also provides billing solutions for water, gas, and fibre broadband, as well as an in-house tender desk that can source competitive electricity and gas supply contracts. We are well-positioned to provide a wide range of utility-related services that will increase the value of your asset. If you have any energy supply agreements that will expire within the next six months, you should start thinking about contract renewals right away. Brendon Blacklaws, our Tender Desk manager, can examine your company's energy requirements and offer unbiased, specialised advice on your contract.
