Rising power prices pushing Kiwi households into power poverty

Tuesday, 11 September 2018

More than 100,000 New Zealand households spend more than 10 per cent of their income on their electricity bills, a new report says.

A discussion document released today as part of the Electricity Price Review shows 103,000 households in the 2016 financial year were in 'energy hardship' – paying more than 10 per cent of their annual income on their home power bills (figures were adjusted for inflation).

If housing costs are excluded, that figure jumps to 175,000 households, and children are over-represented in those homes, the report said.

The independent review was launched in February to look at whether the market is providing efficient, fair and equitable prices, in an environment in which technology is evolving.

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Its first report showed consumers faced significant increases in power costs since 1990, with residential prices rising 79 per cent (figures adjusted for inflation), while commercial prices had dropped 24 per cent.

'Since 2000, New Zealand's residential prices have risen faster than most other OECD countries,' the report said.

It said a 'two-tier retail market appears to be developing', of those who actively shopped around enjoying the benefits of competition, while those who did not pay higher prices. 

NZ head of research Jessica Wilson said access to affordable power was a basic consumer right, but the electricity system was not delivering it.

Wilson said the rapid rise in residential prices had had a major impact on low-income consumers, who often had the least options.

'While the number of electricity retailers had increased, households finding it difficult to meet costs often had limited choice of retailer. They also paid more because they missed out on prompt payment discounts or were forced to change to a prepay meter,' she said.

People with bad credit were often unable to move to a cheaper provider, she said.

Prepay was some of the most expensive power available, but people often had no other option. There were no service standards people had to meet, and the power was paid in advance, reducing potential cost to the retailer. Prepaid meters also have a top-up charge.

Consumer NZ found 20 per cent of consumers had trouble paying for their power bill in the past year, 14 per cent were charged overdue fees and 13 per cent had to borrow to pay it.

Last year, 25,317 people had their power disconnected because of unpaid bills, up from 19,106 in 2015.

The situation could get worse. 

The discussion document suggested low-income households could bear an unfair share of the cost of new solar and battery power technology, if price structures did not change.

'Lower-income households will bear some of the costs that better-off households will avoid by installing solar panels, which we predict will become more common.

'The same goes for electric vehicles. Lower-income households will bear a disproportionate share of the cost of building extra network capacity if these vehicles are widely used and recharged during peak hours.'

But that could be addressed by moving power prices according to demand.

'Affordability should generally improve if prices reflect the cost of providing electricity at different times of the day and year, rather than being flat. But some consumers will be hurt by a move to such pricing. Targeted social welfare measures can help reduce energy hardship.'

Darryl Evans, of Mangere Budgeting Service, said he saw a lot of people struggling with power poverty. Last year, the average family had $83 a week after power and rent, he said, but now it was down to $39 to $41. 'You can't feed a family of two or three kids on $39.'

Low-income families and pensioners worried about using power because they did not know how much their bills might be, he said. Many would opt to forgo heating rather than risk a high bill.

He said he saw people who put their whole families into one room so they only had to heat that one area, or pensioners using sleeping bags to stay warm.

He said the industry should offer fixed-price power bundles for families, so people could opt to pay a set amount each month, like a phone bill, that would give them what they needed.

The review noted that while the industry did not seem to be making excessive profits, it could have a more effective wholesale contract market and could be more efficient in the way its lines companies operated.

Energy and Resources Minister Megan Wood said the document had identified issues to be addressed.

'The review will begin its second phase, developing recommended solutions to the various issues that have been identified. I encourage consumer groups and industry to take the opportunity to make submissions on this report to assist the panel in recommending the way forward,' she said.

'The report is a clear demonstration that the market is not working for everyone. New Zealanders deserve affordable electricity but too many households are struggling to pay their bills. The next step in this process is a conversation with the public about how we remedy that.'

Electricity Retailers Association interim chief executive Nick Robinson said a number of his members had established programmes to support people who were vulnerable or experiencing energy hardship.

'However, there is room to work more effectively by collaborating with social agencies including Housing New Zealand and the Ministry Social Development, and we have made some progress in this area already.

'We have an initiative in place to scale-up the impact across our sector for customers who need it the most. We plan to make a real difference where there is the most need.'

A final report will be delivered in April next year.