Ministry will soon recommend whether to take the lid off daily power charges

Saturday, 7 October 2023

The Government accepted arguments that low-user tariffs led to large families in poorly insulated homes paying more than their fair share of network costs, but their removal has proved controversial.

Government officials expect to decide before the end of the year whether to recommend continuing to remove a cap on the daily charge paid by most households for power.

Energy Minister Megan Woods decided in 2021 to phase out the requirement for electricity retailers to offer power plans with a low fixed daily charge to the 60% of households that use less than about 8000 kilowatts-hours of electricity each year.

That decision has seen hundreds of thousands of households see their daily charge for power rise from 34.5 cents per day before April last year, to $1.04½ today.

Under the policy, the cap will be further raised in annual steps until it reaches $2.07 a day in April 2026, adding more than $50 to the fixed component of most people’s monthly power bills, before the cap is removed altogether the following year.

However, the continued phase-out of the tariffs is subject to a “mid-term review”, which the Ministry of Business, Development and Innovation (MBIE) expects to complete by the end of the year.

The Consumer Advocacy Council is calling for better information from power firms.

A reader poll conducted by Stuff in 2021 indicated the vast majority were opposed to the phasing out of the lower-user tariffs.

However, there are signs the ministry will recommend continuing the phase-out.

The ministry took note on its website of a consultant’s report commissioned by power firms that concluded the phase of low-user tariffs was not resulting in increased revenue for power companies.

MBIE said the Concept Consulting report, which was commissioned by the Electricity Retailers Association (Eranz), suggested the phase-out was “meeting its objectives”.

The ministry’s spokesperson declined to say whether it believed the report could have been influenced by the fact it was paid for by power firms, describing the consulting firm as well-respected.

Officials would not seek public submissions during its review, but would request input from “a range of stakeholders”, including groups representing consumers, she said.

“MBIE will consider a range of sources to determine the impact of the policy.”

Large power firms lobbied for the elimination of low-user tariffs, and have funded a report saying they are not getting more revenue as a result of their removal.

Both power prices and electricity industry profits have risen since the phase-out of lower-user tariffs began.

But Concept Consulting’s report estimated that per-kilowatt charges for electricity were on average 2.6c cheaper than they would have been had the low-user cap on daily fixed charges stayed at 34.5c.

Director Simon Coates said it based that estimate on a reduction in the mark-up between the internal transfer price reported by electricity generators, “which is their assessment of the cost of purchasing that power through hedge contracts”, and the average retail per-kilowatt charge for electricity.

Deborah Hart, chairperson of the Consumer Advocacy Council, which was established by the Government in 2021 to lobby on behalf of consumers and small business in the power market, said it would be difficult to work out what would have happened to electricity prices had the 34.5c cap been left in place.

But MBIE needed to provide “robust evidence” that consumers were benefitting, if it was to proceed with the phase-out, she said.

She did not believe that Concept Consulting’s report provided that evidence to a level that satisfied the council.

More assistance should have been provided to people who were losing out and could be put in hardship by the policy, which would include many single people living alone, she said.

The Consumer Advocacy Council had been invited to meet with MBIE, but the ministry had left itself with comparatively little time to conduct a robust review, Hart said.

An industry source said there was a growing feeling that daily charges would need to be more closely tied to the amount of power that households used during peak periods on weekday mornings and evenings.

That could be necessary in order to give people additional incentives to switch power-use to off-peak times, reduce the pressure for expensive network upgrades, and prevent the growing risk of power cuts in a few years’ time, he said.