Minister to decide by June how to 'replace' low-user electricity plans

Thursday, 15 April 2021

People who had invested in solar energy or who used gas or wood burners would be likely to be among the losers if electricity companies were no longer required to offer low-user tariffs.

Energy Minister Megan Woods says she expects to decide by the end of June how to phase out “low user” electricity tariffs, which tend to advantage people who use gas or solar electricity or who live alone.

Woods said last week she “remained concerned about the impact phasing out these regulations could have on consumers” and told Stuff on Thursday that she still wanted to take “a close look”.

But she indicated the Government nevertheless intended to press ahead with “replacing” the plans despite those concerns, saying also that there had been no change in policy.

Scrapping a requirement for electricity retailers to offer plans with a low fixed daily charge – and which have a higher per-kilowatt hour charge for electricity – was one of the more controversial recommendations of the Electricity Price Review in 2019.

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The independent review recommended phasing out the requirement for power companies to offer such tariffs over five years.

A frequently-cited reason for doing so is that the lines component of providing power to homes does not vary much, if at all, based on how much power they are using, so the tariffs can effectively result in large families who may be more likely to be in poverty subsidising households that don’t consume much power.

But the proposal has attracted criticism from Grey Power, and from some environmentalists given that one of the reasons former Prime Minister Helen Clark introduced the tariffs in 2004 with the support of the Green Party was to encourage energy conservation.

More than half of households – typically those that consume less than 8000 kilowatt-hours of power per year – are currently on the power plans.

Among the likely losers from their abolition would be pensioners and people who didn’t consume much power off the grid as they had invested in solar energy systems.

But a counter-argument with regard to the environment put forward by Cameron Burrows, chief executive the Electricity Retailers Association, is that low-user tariffs impede the uptake of EVs.

Low-user tariffs can encourage electricity conservation, but a flip side is that can make it less attractive for people to buy EVs.

“If you are a ‘low user’ at the moment, you face a higher energy component in your bill and that is a disincentive to use more,” he said.

Doing away with the requirement for low-user tariffs would also discourage the use of gas and wood burners, in favour of electricity, relative to the current pricing structure.

Woods would not say whether the Government might regulate to ensure any increase in electricity charges faced by low-usage households would be passed on to other households.

“I am not going to say what we are and aren’t looking at,” she said.

Burrows said he did not see a need for such regulation, as the market would drive that outcome.

“The way the market works at the moment is there is really strong competition between more than 30 retailers so there is constant pressure to make sure prices are as sharp as possible,” he said.

Woods initially stated in a Cabinet paper in 2020 that she agreed with a phase-out but made clear the Government would proceed with it only cautiously.

She appeared to double down on that caution last week, saying she had asked officials to “further explore options to support vulnerable consumers through the phase out”.

Burrows hesitated when asked whether he was happy with the speed at which the Government was implementing the recommendation of the Electricity Price Review.

“We always want things to happen quickly, but I think it is important we take the time to ensure it is well examined,” he said.