Low-user electricity tariffs will be phased out over 5 years

Thursday, 16 September 2021

Power bills will change for most households, with big impacts for some.

Most consumers may see their fixed daily charge for electricity jump from 30 cents a day to $1.80 a day over the next 4½ years.

Energy Minister Megan Woods has accepted a recommendation made in 2019 by the Electricity Price Review to phase out the requirement for power companies to offer “low fixed charge” electricity tariffs.

Power companies will be able to levy several hundred million dollars a year more in fixed charges as a result of the change.

But the Government expects households will see their variable power prices drop as their daily fixed charges rise, leaving ‘winners and losers’ but consumers no worse off on aggregate.

Solar powers users are among those who have benefitted from low fixed charge tariffs, since their introduction in 2004.

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Low fixed charge tariffs are designed to appeal to consumers who use less than the average amount of electricity.

They cap the fixed daily charge that those customers pay for power at 30c a day, excluding GST, but Woods has announced that cap will rise by 30c each year from April next year through to April 2026, before the caps are removed altogether the following April.

The Government believes that, overall, consumers who use more than 6500KWh of power will see lower bills, but those who use less can expect to lose out.

The low fixed-charge plans come with higher variable charges for power but are designed to work out cheaper overall for households that consume less than 8000 kilowatt-hours a year in the North Island or 9000KWh in the South Island.

About 59 per cent of households are on the plans, Woods said.

They tend to benefit smaller households, including pensioners and apartment dwellers, and also people who have invested in solar systems or who use gas or wood burners for hot-water or home heating.

But the Electricity Price Review concluded they were unfair, arguing the people who benefited from them most were in effect being subsidised by customers who used more power – including large families who might be living in poverty in poorly insulated homes.

Low user tariff caps were originally introduced by the Labour government in 2004 with the support of the Greens as a way to encourage electricity conservation.

The Clean Car Discount scheme was unveiled by Transport Minister Michael Wood and Climate Change Minister James Shaw on June 13. (First published June 2021)

But Woods said phasing them out would create a “fairer playing field” for consumers and encourage people to switch to electric vehicles and use heat pumps rather than gas to heat their homes.

During the phase-out, about 60 per cent of households were likely to have lower power bills, Woods said.

The current requirement for consumers to be no better or worse off whichever usage-plan they are on if they use exactly 8000KWh a year in the North Island or 9000KWh in the South Island will stay in place during the phase-out.

It is understood that rule is intended to ensure power firms pass on higher fixed charges to customers in the form of lower per-kilowatt charges, although there is no guarantee of overall revenue neutrality.

Regardless of that, the change will leave some consumers out-of-pocket.

Woods said electricity companies had agreed to set up a $5m fund to assist those who would be worst affected.

It is understood the Government will also review how the transition is working out in practice towards the end of 2023.

The phase-out of lower user tariffs is one of the last of the 2019 Electricity Price Review’s recommendations to be adopted by Energy Minister Megan Woods.

Electricity companies have enthusiastically backed the phase-out since it was recommended.

Cameron Burrows, chief executive of the Electricity Retailers Association, whose members include the major ‘gentailers’, said it would stop low-income households “subsidising the electricity of better-off families”.

Most households, including low-income earners, would be better off from this change, Burrows said.

But some who are currently on the low fixed rate “may see bills increase slightly” but for the majority in that situation the change would only be a few dollars a month, he said.

Stuff reader polls have previously suggested hostility to the change, with about three-quarters of respondents opposed.

Woods has appeared to hesitate over the policy.

She said in April that she planned to make a decision by the end of June but remained concerned about the impact the phase-out could have and wanted to take “a close look”.

Grey Power has been one of the more vocal critics of the Electricity Price Review’s original recommendation.

Former president Mac Welch was understood to have raised its concerns with Woods in 2019.

Grey Power describes low user plans as a “fundamental part of the consumer electricity industry” that can help households with modest energy requirements save big on their power bills.

Cameron Jardine, spokesman for gas industry group Future Sure, said the phase-out of low fixed charges was likely to have little impact on the gas industry “as gas is not a direct competitor to electricity for all uses in the home”.

“Gas is used by 180,000 consumers as their preferred option for instant cooking, instant hot-water heating or space heating, which will be able to continue for customers through the introduction of renewable gases,” he said.