Supplied Content
Wellington, September 21, 2021
A key recommendation of an independent panel to make electricity charges fairer across all households will be put in place, the Energy and Resources Minister Megan Woods has announced.
Following is her Statement:
Phasing out the regulations on ‘low-use’ electricity plans will create a fairer playing field for all New Zealanders and encourage a switch to electric technologies.
The regulations will be phased out over five years, starting from April 1, 2022, with support for households who might be affected by the changes.
Currently, the cost of delivering electricity through lines charges to those on low-use plans is supplemented by other households on standard-use plans. The 2019 Electricity Price Review Panel found the low fixed charge regulations are poorly targeted and are not equitable, or fair to everybody, and recommended the change.
Benefiting the majority
During the phase-out, about 60% of households are likely to benefit from lower power bills.
While the low fixed charge regulations were intended to help some struggling households, they can put more of a financial burden on those who don’t qualify for low fixed charges, particularly larger families and those living in poorly insulated homes who have higher electricity needs and have to pay the much higher standard fixed charge.
About 59% of households are now on low fixed charge plans, which means that those on standard-use plans are charged more to make up for the under-recovery of fixed charges from those on the lower rates. This change will mean the sector can implement new, fairer pricing plans for distributing electricity.
Ultimately, this will help the industry to efficiently manage the load on the network during peak times, avoiding costly network upgrades and helping to keep prices lower for consumers. There are some perverse outcomes from low fixed charge regulations.
Wealthier households with low fixed charges have more options to reduce their power use through energy-saving measures like double glazing, smart appliances and solar panels.
Disadvantages of high variable rates
But low-use households who are also low-income households can under-heat their homes to save on power bills because their variable rates on electricity use are high.
High variable rates also discourage households from switching from higher carbon technologies like gas heating to low carbon technologies like EVs and heat pumps.
Cleaner, low emissions technologies are important for achieving our goals to have net-zero carbon by 2050. We need regulations that make it easier for people to switch from fossil fuels to electric alternatives, not harder.
The electricity sector is developing a $5 million power credits scheme to help with the transition for some households on low fixed charges who may face higher power bills. Details on the scheme are being finalised.
Meanwhile, Cabinet has agreed to a review in late 2023 of the regulation phase-out, to assess any impacts on low-income households and whether additional support is necessary.
