Network infrastructure pricing study

We use a number of funding mechanisms to raise most of the money we need to pay for our network infrastructure services. Good infrastructure pricing is needed for efficient and sustainable infrastructure investment.

Sometimes funding approaches are obvious and connected to how much we use, like monthly electricity bills and mobile phone bills. Other times they are far less visible, like fuel excise that’s included in retail petrol prices or rates and taxes, which pay for many of the infrastructure services that we depend on.

We commissioned PwC to conduct this research. It looks at how pricing works in New Zealand’s four main network infrastructure sectors: land transport, water, telecommunications, and energy.

This work aims to provide a baseline view on pricing in each of these sectors and to assess how current approaches align with best practice principles for pricing of network infrastructure.

 

Key findings

• The research outlines three best practice goals for how infrastructure networks should be priced:
  • Pricing should guide infrastructure investment to ensure that we can provide and maintain the infrastructure we need. This is the most important to get right as network infrastructure is long-lived and can impact our future choices.
  • Pricing should send signals to users about when, where, and how they should use infrastructure networks to maximise the overall benefits of those networks. This is the second most important goal as service levels and investment needs are highly influenced by user behaviour.
  • Pricing should be used to share benefits of providing networks widely through society. This should be addressed through adjustments to pricing once the first two goals are achieved.
• The research includes a desktop-based assessment of New Zealand’s four main network infrastructure sectors against best practice goals. This is a broad assessment of overall pricing systems and practices, supported by a set of quantitative case studies, rather than a detailed analysis of prices within each sector.
• The key finding of this assessment is that infrastructure pricing is better aligned with best practice goals in electricity and telecommunications, and less well aligned in land transport and water.
• Sectors with better pricing practices have an easier time raising the right amount of money to maintain and improve their assets and identifying the highest-value areas for investment. These networks also tend to operate more efficiently.
• As a result, improving pricing of network infrastructure can help to improve infrastructure investment. It can do this by increasing the amount of money available for investment, where there is demand for investment, and also by reducing or deferring the need to invest.
• The research identifies opportunities to improve pricing performance in all sectors. For example, transport congestion charging to reduce urban road congestion, implementing water metering to support water conservation and leak detection, managing technology change in telecommunications, and incentivising energy efficiency and decarbonisation.
• The research considers the equity implications of changes to infrastructure prices, which can be a barrier to moving towards better pricing practices. How we charge for infrastructure can affect the distribution of costs between high-income and low-income households. The research quantifies the impacts of increasing different types of charges on different types of households.
• Lastly, the research identifies opportunities to collect and analyse existing data to monitor the effectiveness of network pricing.

 

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Download reports

This study has four separate reports that focus on key areas of infrastructure network pricing.